Question

In: Finance

Diversification can increase the level of systematic risk. True False According to the CAPM, which of...

Diversification can increase the level of systematic risk.

True

False

According to the CAPM, which of the following is NOT related to the expected return on a stock?

A.

pure time value of money as measured by the risk-free rate

B.

amount of systematic risk as measured by beta

C.

the reward for systematic risk as measured by the market risk premium

D.

amount of risk as measured by the standard deviation

If a stock does not pay dividends which of the following must be true?

A.

The P-E must be zero.

B.

The stock price will fall.

C.

The expected return is equal to the expected growth in price.

D.

The stock must have a value of $0.

Solutions

Expert Solution

The answers are as follows:


Related Solutions

True or False and Why? Financial crisis is one example of systematic risk. Since diversification can...
True or False and Why? Financial crisis is one example of systematic risk. Since diversification can only eliminate unsystematic risk, it doesn’t provide any benefits to the investors during a financial crisis.
Which of the following statements is TRUE? Multiple Choice Diversification can reduce the systematic risk component....
Which of the following statements is TRUE? Multiple Choice Diversification can reduce the systematic risk component. The slope of the security market line (“SML”) is the beta coefficient. Maximum benefit from diversification occurs when the correlation coefficient for pairs of stocks is minus one. Beta coefficient measures the unsystematic risk.
which statement is true regarding diversification a. The greater systematic risk, the greater return should be...
which statement is true regarding diversification a. The greater systematic risk, the greater return should be required b. systematic risk is diversifiable c. portfolio diversification address systematic risk d. none of the above
The CAPM contends that there is systematic and unsystematic risk for an individual security. Which is...
The CAPM contends that there is systematic and unsystematic risk for an individual security. Which is the relevant risk variable and why is it relevant? Why is the other risk variable not relevant? Requirements: 250
Which of the following is true? A. A stock’s systematic risk can be diversified away by...
Which of the following is true? A. A stock’s systematic risk can be diversified away by adding it to a portfolio. B. Investors should not be compensated for bearing nondiversifiable risk. C. Beta is a measure of the nonsystematic risk of an asset. D. None of the answers are correct.
In most cases, diversification can reduce or eliminate this type of risk. A. systematic risk. B....
In most cases, diversification can reduce or eliminate this type of risk. A. systematic risk. B. nonsystematic. C. macro risk D. all risk.
Explain the CAPM. [hint: we need to discuss systematic and unsystematic risks, diversification, assumptions CAPM makes,...
Explain the CAPM. [hint: we need to discuss systematic and unsystematic risks, diversification, assumptions CAPM makes, SML line, the model, things CAPM can't explain, etc. ]
Which of the following statements is false? Systematic risk is a market-wide source of risk and...
Which of the following statements is false? Systematic risk is a market-wide source of risk and is non-diversifiable. The beta estimate of the market portfolio is one. The yield to maturity is less than the coupon rate of a premium bond. Assuming no IRR problems, if IRR > cost of capital, the NPV estimate is negative. The reinvestment rate of the MIRR is the cost of capital.
Systematic risk of financial assets: Group of answer choices can be effectively eliminated by portfolio diversification....
Systematic risk of financial assets: Group of answer choices can be effectively eliminated by portfolio diversification. is not priced risk is measured by beta. is measured by standard deviation. is related to the industry specific factors.
According to CAPM, which of the following would increase a company's cost of equity if the...
According to CAPM, which of the following would increase a company's cost of equity if the company had origanlly calculated Ke using: Rf=1.5%, Beta = 1.31, and the market risk premium is 8%? 1- Increasing Beta 2- Increasing Rf 3- Decreasing Rf 4- Increasing the rick on the market answer options - a- 1 and 2 b- 1, 2, and 3 c- 2, 3, and 4 d- 1, 3, and 4
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT