When adding a risky asset to a portfolio of may risky assets, which property of the asset has a greater influence on risk: its standard deviation or its covariance with other assets? Explain
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When adding a risky asset to a portfolio of may risky assets, which property of the asset has
a greater influence on risk: its standard deviation or its covariance with other assets? Explain
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- What is the best way to measure of risk for an asset held in isolation, and which is the best measure for an asset held in a diversified portfolio?The systematic risk principle states that the expected return on a risky asset depends only on which one of the following? Unsystematic risk Market risk Diversifiable riskThe risk of the portfolio depends not only on the individual risks of the assets but also on the ________ between the asset returns.
- The desired rate of return on an investment should reflect the degree of risk involved. A. True B. FalseBeta is defined as the: a. Amount of systematic risk in a risky asset relative to that in an average asset. b. Ratio of unsystematic risk in a risky asset relative to the systematic risk in the overall market. c. Amount of systematic risk in a risky asset relative to that of a risk-free asset. d. Ratio of the total risk in a risky asset relative to the systematic risk in the overall market. e. Slope of the security market line.What is the relationship of risk to the investment?
- The capital asset pricing model (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?Using a graph, explain when a security is overpriced, under-priced or fairly priced according to the Capital Asset Pricing Model.What does Jensen's alpha measure? a. An investor's reward in proportion to their assumption of systematic risk b. The abnormal return of an asset, defined as the degree to which its actual return exceeds that predicted by the capital asset pricing model c. The degree to which diversifiable risk is eliminated d. How much reward an investor is getting for each unit of risk assumed
- How do an investment's required rate of return vary with perceived risk? Explain with an example?What are the quantitative characteristics of the asset and how to measure. How does one asset in the same portfolio influence the other one in the same portfolio. What could be the influence of this relationship to the investor's portfolio? What is relationship between the return on an asset and returns in the whole market (market portfolio)?Which is least likely correct about security valuation?a. The calculated or determined value considers the stream of future cash flows.b. The calculated or determined value equals the market price.c. The calculated or determined value considers the risks involved and the opportunity cost.d. The calculated or determined value allows the investors to evaluate whether a security isovervalued or undervalued.e. All of the above