Question

Which type of risk does owning about 50 or more individual stocks almost fully eliminate? Systematic risk or Unsystematic risk?

               

"Over the long term (such as 88 years), stocks will tend to provide a higher rate of return than corporate bonds." True or False?

If a company is able to earn more than its cost of capital on its investments then its stock price will tend to increase over time. True or false?

Answer 1

Which type of risk does owning about 50 or more individual stocks almost fully eliminate? Unsystematic risk

By investing in the 50 or more individual stocks the owner can eliminate unsystematic risk which is inherent to the company. But they cannot eliminate systematic risk which is inherent in economy and changes unpredictably.

"Over the long term (such as 88 years), stocks will tend to provide a higher rate of return than corporate bonds." True

The major benefit of Stocks over bonds is the stocks has ability to outperform corporate bond over long term because in case of corporate bond you tend to earn only interest but in stocks you are owning a company which in this case holding for 88 years means that the company performed so well that it stood for 88 years.

If a company is able to earn more than its cost of capital on its investments then its stock price will tend to increase over time. True.

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