What type of risk should the rational (aka not stupid) investor be concerned with? Systematic risk (the stuff we can't squeeze out) which is measured by BETA Unsystematic risk (the stuff we can squeeze out) which we don't measure because we can squeeze it out Total risk which is what a nondiversified investor would face

What type of risk should the rational (aka not stupid) investor be concerned with? Systematic risk (the stuff we can't squeeze out) which is measured by BETA Unsystematic risk (the stuff we can squeeze out) which we don't measure because we can squeeze it out Total risk which is what a nondiversified investor would face

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 8QTD

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In a few sentences, answer the following question as completely as you can. We routinely assume that investors are “risk-averse return-seekers” (i.e., they like returns and dislike risk). If so, why do we contend that only systematic risk is important? Alternatively, why is total risk, on its own, not important to investors?
What would the SML look like if investors werecompletely indifferent to risk—that is, had zero risk aversion?
If the CAPM were to hold, how would you identify the more risk averse investors?
Why are investors risk-averse? How can investors deal with different degrees of risk?
Which of the following statements correctly describe characteristics of a risk averse investor? Group of answer choices A. A risk-averse investor may be willing to give up some expected return in order to be exposed to a higher level of risk. B. Given a choice, a risk-averse investor will always choose the investment with the lower level of risk when deciding between two investments offering different levels of expected return. C. More than one of the other statements is correct. D. A risk-averse investor will demand compensation in the form of higher expected returns in order to take on investments with higher risk.
Does a greater risk imply a bad investment? Give me some example.
You are a risk-averse investor. Would you therefore invest in financial assets that have a high or a low beta (b) coefficient? How high or low the beta coefficient should be in this case?
All things remaining equal, a risk averse investor who is less risk tolerant would prefer an investment with what beta? Select one: a. High b. Beta is not a relevant consideration for this investor c. Low d. Moderate
Is it reasonable to ignore IDIOSYNCRATIC RISK and care only about MARKET (SYSTEMIC) risk? What about investors who put all their money into only a single risky stock...is that prudent and can they ignore idiosyncratic risk?
How can an investor eliminate Systematic risk?
After combining a riskfree asset with the efficient frontier of risky portfolios, you no longer need to know an investor's preferences over risk and return to identify the risky portfolio they should hold. Group of answer choices True False
We understand standard deviation of returns as a measure of risk and rational investors would like to minimize risk. Notwithstanding this, you may have read that as the standard deviation of returns of the underlying asset increases the value of an option rises. If standard deviation is a measure of risk and investors do not particularly like it, why does it lead to an increase in an option's value?

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		Systematic risk (the stuff we can't squeeze out) which is measured by BETA
		Unsystematic risk (the stuff we can squeeze out) which we don't measure because we can squeeze it out
		Total risk which is what a nondiversified investor would face