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- Explain the unique risk and the market risk. What risk can be reduced when you diversify your portfolio by investing across many different assets?An investor’s first step of investing in the financial markets is to establish an investment objective aligned with his or her long-term financial goals and needs. The critical part of the investment process is to earn the maximum return possible while minimizing risk. Portfolio diversification is the cornerstone of reducing risk in a portfolio. How would you use the Excel spreadsheet to quantify and reduce the risk in your risky asset investment portfolio?Whenever you make an investment decision, you need to consider its impacts on the diversification of your portfolio and the allocation of your assets. a. false b. depends c. maybe d. true
- As one adds more assets to a portfolio in order to achieve diversification, what will happen to the portfolio’s risk?Which of the following is TRUE? High-risk investments always have high returns If you invest in a risky investment, you are guaranteed to have a high return. On average, an investor will earn high returns on a low-risk investment On average across investments and over time, riskier investments have higher returns. A high-risk investment will never have a total loss.if diversification is desired, would you seek investments with high correlation?
- From the sentences below, choose the one that DOES NOT fit in the concept of diversification. * An investor should investment her/his money in different types of securites because by doing so she/he will be able to create a compensation effect in which the less good performance of some investments can be compensated by the good performance of other investments. A portfolio constructed of different kinds of investments will, on average, have higher returns and a lower risk than any individual investment found within the portfolio. A very well diversified portfolio should be composed by different types of securities, from different sectors and from different geographical locations. Do not put all your eggs in one basket. In order to have the maximum return, an investor should invest all her/his money in the top 5 best stocks of the market.If an investor prefers investment with higher risk , regardless to the return then he is following a ________ strategy. a. risk-aware b. risk-neutral c. risk-averse d. risk-seekingPortfolio diversification is the cornerstone of reducing risk in a portfolio. How would you use the Excel spreadsheet to quantify and reduce the risk in your risky asset investment portfolio?
- Explain what is the criterion used by a rational investor for choosing a financial investment in terms of its risk return combination.The following is a concise explanation of the primary investment risk characteristics that investors must consider while picking between different investments.discuss the importance of considering risk when analyzing investments?