Answered: The measure of risk for a security held…

The measure of risk for a security held in a diversified portfolio is: Specific risk. Standard deviation of returns. Reinvestment risk. Covariance.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 21P

See similar textbooks

Related questions

Q: An company needs to make the following annuity payments into a pension fund: £1100 paid at the…

A: The FV of an investment refers to the combined worth of the cash flows of the investment at a…

Q: Fields & Company expects its EBIT to be $107,000 every year forever. The company can borrow at 7…

A: For calculation of cost of equity after recpaitalization , we need to use the following…

Q: You are a currency trader specializing in the Japanese yen, and you are confident that the spot…

A: Forward contract is non standardized contract between two parties to buy or sell asset at a…

Q: Which of the following bank accounts has the highest effective annual return? An account that pays…

A: When you take a loan then an interest rate is stated on the loan agreement. The stated rate is…

Q: Given the information below for StartUp Co., compute the expected share price at the end of 2020…

A: Share price of 2020 = SPS of 2019 * Average price to SPS ratio *(1+Average growth of SPS)

Q: a. What does the NPV rule say you should do? The NPV of the project is $ million. (Round to two…

A: NPV = -initial investment + PV of future cash flowsPresent value = Future value/(1+i)^ni = interest…

Q: The Saleemi Corporation's $1,000 bonds pay 6 percent interest annually and have 11 years until…

A: The face value of the bond is $1,000.The coupon rate is 6%.The maturity is 11 years.The price of the…

Q: Rogot Instruments makes fine violins and cellos. It has $1.8 million in debt outstanding, equity…

A: Capital Structure :Debt capital = $1.78 MillionEquity capital = $2.9 MillionTotal Capital = $1.8 +…

Q: How much much money is in this account on your 18th birthday (after your grandma made her deposit)?

A: We need to use the FV formula for $150 on day on your birth and for $20 you found on your 8th…

Q: Primare Corporation provided the following data for last month's manufacturing operations. Purchases…

A: The degree of operational leverage (DOL) is a financial indicator that gauges a company's operating…

Q: Metro Car Washes, Inc., is reviewing an investment proposal. The initial cost as well as the…

A: Net present value is the difference between the present value of cash flow and initial investment in…

Q: Territory and Product Profitability Analysis Pipeline Surfboards Inc. manufactures and sells two…

A: The contribution margin is calculated as difference between sales and variable costs. The break even…

Q: Assume that the 10-year U.S. Treasury is yielding 4.0 percent. Next year's earnings for the S&P 500…

A: Using Fed Model ,Y = whereY = Bond YieldE = Earnings EstimateP= Estimated Value of S&P

Q: You are evaluating a prospective LBO investment and determine that the Year 5 free cash flow (FCF)…

A: The perpetuity growth method (or the Gordon Growth Model) is a commonly used method to estimate the…

Q: You plan to donate $2,500,000 to establish a fund to support the Feliciano School of Business at…

A: Present value can be defined as how much is the worth of the future sum of money at present provided…

Q: A newly established limited liability company, Joyful Way Limited, is constructing factory for the…

A: NPV refers to the net present value, one of the techniques of capital budgeting used to evaluate the…

Q: 52-Week Price Lo 10.43 Acevedo .36 34.27 Georgette, Incorporated 2.39 69.50 YBM 2.00 13.95 Manta…

A: The dividend yield is a financial ratio that indicates the percentage return an investor can expect…

Q: Find i (the rate per period) and n (the number of periods) for the following annuity. Semiannual…

A: In finding out the present value or future value of the annuity the compounding of interest and…

Q: What is the company's degree of operating leverage? Note: Round your answer to 2 decimal places.…

A: The degree of operational leverage (DOL) is a financial indicator that gauges a company's operating…

Q: The correlation coefficients between several pairs of stocks are as follows: Corr(A, B) = .85;…

A: The expected return rate of the portfolio can be found by adding up each stock's return after…

Q: Replacing old equipment at an immediate cost of $75,000 and an additional outlay of $10,000 six…

A: The NPV of a project refers to the measure of the profitability of the project calculated by…

Q: estimate that the stock has a required rate of 18%. What is the intrinsic value of this stock?

A: The constant growth model is a stock valuation method used in finance to determine a stock's…

Q: Dowling Sportswear is considering building a new factory to produce aluminum baseball bats. This…

A: Initial investment is $6,000,000.Annual Cash inflows are $1,100,000.The Discount rate is 7%.The…

Q: Analysts' estimates on expected returns from equity investments are based on several factors. These…

A: An expected return is the quantum of financial gain or loss an investor expects from their…

Q: Calculate the value of a bond that matures in 19 years and has a $1,000 par value. The annual coupon…

A: Here,Par Value of Bond is $1,000Coupon Rate is 16%YTM is 14%Time to Maturity is 19 years

Q: You have the following rates of return for a risky portfolio for several recent years. Assume that…

A: Geometric Return = ---------------- -1r1 = (55-50)/50 x 100 = 10.00%r2 = (51-55)/55 x 100 = -7.27%r3…

Q: The next dividend payment by Savitz, Inc., will be $2.43 per share. The dividends are anticipated…

A: According to Gordon's model ,Po = wherePo= Current price of shareD1 = Expected dividendr = required…

Q: Consider these futures market data for the June delivery S&P 500 contract, exactly one year from…

A: When you know that one investment will give you higher return than the other, then the best way to…

Q: 6. The Fisher effect and the cost of unexpected inflation Suppose the nominal interest rate on…

A: unexpected inflation costs accumulate when there is a mismatch between supply &demand of market…

Q: He earns 9% on his investments, and inflation has averaged only 3% annually. Assuming he is expected…

A: In today life retirement planning is very important and that should be done on the basis of…

Q: 3. Allied Corporation has zero coupon bonds outstanding that mature in 15 years. Calculate the…

A: “Since you have asked multiple question, we will solve the first question for you. If you want any…

Q: The portfolio turnover for Fund 1 is closest to: Average Daily Assets Purchases Sales Select one O…

A: Portfolio turnover is a measure of how frequently assets within a fund are bought and sold over a…

Q: Esfandairi Enterprises is considering a new 3-year expansion project that requires an initial fixed…

A: Life = l = 3 YearsInitial Value = i = $2,280,000Sales = s = $1,750,000Cost = c = $660,000Tax Rate =…

Q: An investment will provide a regular quarterly income after a deferred period of 3-years, starting…

A: The present value refers to the discounted value of the future expected cash flow or expected…

Q: Find the present value of this investment giving a nominal rate of interest of 4.26% per annum…

A: We need to use the formula below to determine the PV at year 0. In the formula above PMT = first…

Q: Current Attempt in Progress Crane Company signs a contract to sell the use of its patented…

A: The trade name is an intangible asset for the business, It's reported in the assets section of the…

Q: Suppose you have a 4-year-old son and you want to provide R55 000 in 16 years towards his college…

A: Rate of return is computed as follows:-Rate of return = - 1wheren = time period

Q: ack inherited a perpetuity-due, with annual payments of 10,000. He immediately exchanged the first…

A: PV=PMT/InterestWhere PV = Present valuePMT=Annual payments of $10,000Interest=Effective interest…

Q: Congratulations. You just won the California State Lottery. The amount awarded is paid in 20 equal…

A: Present value:Present value refers to the concept in finance and economics that assigns a lower…

Q: A stock priced at 50 can go up or down by 10 percent over two periods. The risk-free rate is 4…

A: American put is an option that gives the option holder the right to sell the asset at a specified…

Q: Charles Lackey operates a bakery in Idaho Falls, Idaho. Because of its excellent product and…

A: Given, in the question :Labour hours = 160Number of workers = XOutput= 1500Productivity = 2.344With…

Q: You have 100.000$ to invest in either Stock D, Stock F, or a risk-free asset. You must invest all of…

A: We invest in different stocks as an investor. A portfolio consists of investments in two or more…

Q: First City Bank pays 7 percent simple interest on its savings account balances, whereas Second City…

A: 1. Future value in case of account earning simple interest.FV = A +IwhereFV = future valueA =…

Q: a. What is the expected return of WT stock without leverage? b. Suppose the risk-free interest rate…

A: An investment's projected gain or loss taking into account the probability-weighted average of all…

Q: Why is the price $100, when the last price was $1,038.60?

A: I believe that is a typo. The $100 is the redemption value or face value not the price.

Q: margin is 9.1 percent. If the firm also wishes to maintain a constant debt-equity ratio, what must…

A: Debt-equity ratio evaluates how much debt and equity a company uses to finance its operations and…

Q: Suppose that risk-free zero interest rates with continuous compounding are as follows: Maturity Rate…

A: Variables in the question: Maturity (years)Rate (% per annum)12.0%23.00%33.70%44.20%54.50%

Q: Suppose gold is the only good in the world and today sells for $1,895 in the U.S. and for £1.249 in…

A: According to Purchasing power parity ,S1 = So * whereSo = current spot price S1 = Expected spot…

Q: You run a construction firm. You have just won a contract to build a government office complex.…

A: The NPV of an investment or project is a financial statistic used to analyze its profitability. It…

Q: You find the following Treasury bond quotes. To calculate the number of years until maturity, assume…

A: A bond is a kind of debt security issued by the government and private companies to the public for…

Question

The measure of risk for a security held in a diversified portfolio is:

Specific risk.
Standard deviation of returns.
Reinvestment risk.
Covariance.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: introduction to diversified portfolio:

VIEW

Step 2: Explanation for Correct Option:

VIEW

Step 3: Explanation for incorrect options:

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

What is a characteristic line? How is this line used to estimate a stocks beta coefficient? Write out and explain the formula that relates total risk, market risk, and diversifiable risk.
The measure of risk for a security held in a diversified portfolio is:a. Specific risk.b. Standard deviation of returns.c. Reinvestment risk.d. Covariance.
Standard deviation of portfolio returns is a measure of ___________. Group of answer choices total risk systematic risk market risk firm-specific risk unsystematic risk
Which of the following factors is most likely to affect the level of systematic risk in a portfolio? The type of industries represented in the portfolio The number of securities in the portfolio Macroeconomic conditions The geographic location of the securities in the portfolio
The contribution of an individual asset to the riskiness of a fully diversified portfolio depends primarily on which of the following? The covariance of the asset's return with the return of the rest of the portfolio The variance of the asset's return The covariance of the asset's return with the return on the riskless asset The skewness of the asset's return
Explain the difference between (a) stand-alone risk and (b) risk in a portfolio context. How are they measured or calculated, and are they relevant to investors?
True or false The risk or variability of a well-diversified portfolio mostly reflects the contributions to risk from the standard deviations of the stocks within that portfolio
The risk of the portfolio depends not only on the individual risks of the assets but also on the ________ between the asset returns.
The standard deviation of a portfolio Group of answer choices -is not a weighted average of the standard deviations of the individual securities held in that portfolio. -cannot be less than the weighted average of the standard deviations of the individual securities held in that portfolio. -measures the amount of diversifiable risk inherent in the portfolio. -is a measure of that portfolio's systematic risk. -serves as the basis for computing the appropriate risk premium for that portfolio..
Which of the following measures reflects the excess return earned on a portfolio per unit of its systematic risk a. Treynor’s measure b. Sharpe’s measure c. Jensen’s measure d. Total measure
The security market line depicts:a. A security’s expected return as a function of its systematic risk.b. The market portfolio as the optimal portfolio of risky securities.c. The relationship between a security’s return and the return on an index.d. The complete portfolio as a combination of the market portfolio and the risk-free asset.
Indicate why you agree with justifications to the following statements: “As a percentage of the total risk, the unsystematic risk of a diversified portfolio is greater than that of an individual asset.”