CORPORATE FIN.(LL)-W/ACCESS >CUSTOM<
11th Edition
ISBN: 9781260269901
Author: Ross
Publisher: MCG CUSTOM
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Textbook Question
Chapter 11, Problem 2CQ
Systematic versus Unsystematic Risk Classify the following events as mostly systematic or mostly unsystematic. Is the distinction clear in every case?
- a. Short-term interest rates increase unexpectedly.
- b. The interest rate a company pays on its short-term debt borrowing is increased by its bank.
- c. Oil prices unexpectedly decline.
- d. An oil tanker ruptures, creating a large oil spill.
- e. A manufacturer loses a multimillion-dollar product liability suit.
- f. A Supreme Court decision substantially broadens producer liability for injuries suffered by product users.
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Classify the following event as mostly systematic, mostly unsystematic:
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Classify the following event as mostly systematic, mostly unsystematic:
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Which of the following is an example of diversifiable risk?
a) Interest rates rising
b) A stock market crash
c) A company's CEO being arrested for fraud
d) A terrorist event like 9/11
Classify the following events as mostly systematic or mostly unsystematic. Is the distinction clear inevery case? Provide detailed explanation. a. Short-term interest rates increase unexpectedly.b. The interest rate a company pays on its short-term debt borrowing is increased by its bank.c. Oil prices unexpectedly decline.d. A manufacturer loses a multimillion-dollar product liability suit.
Chapter 11 Solutions
CORPORATE FIN.(LL)-W/ACCESS >CUSTOM<
Ch. 11 - Diversifiable and Nondiversifiable Risks In broad...Ch. 11 - Systematic versus Unsystematic Risk Classify the...Ch. 11 - Expected Portfolio Returns If a portfolio has a...Ch. 11 - Diversification True or false: The most important...Ch. 11 - Portfolio Risk If a portfolio has a positive...Ch. 11 - Beta and CAPM Is it possible that a risky asset...Ch. 11 - Covariance Briefly explain why the covariance of a...Ch. 11 - Prob. 8CQCh. 11 - Prob. 9CQCh. 11 - Prob. 10CQ
Ch. 11 - Determining Portfolio Weights What are the...Ch. 11 - Portfolio Expected Return You own a portfolio that...Ch. 11 - Portfolio Expected Return You own a portfolio that...Ch. 11 - Portfolio Expected Return You have 10,000 to...Ch. 11 - Prob. 5QPCh. 11 - Calculating Returns and Standard Deviations Based...Ch. 11 - Calculating Expected Returns A portfolio is...Ch. 11 - Returns and Standard Deviations Consider the...Ch. 11 - Returns and Standard Deviations Consider the...Ch. 11 - Calculating Portfolio Betas You own a stock...Ch. 11 - Calculating Portfolio Betas You own a portfolio...Ch. 11 - Using CAPM A stock has a beta of 1.15, the...Ch. 11 - Using CAPM A stock has an expected return of 13.4...Ch. 11 - Using CAPM A stock has an expected return of 13.4...Ch. 11 - Using CAPM A stock has an expected return of 11.2...Ch. 11 - Prob. 16QPCh. 11 - Prob. 17QPCh. 11 - Reward-to-Risk Ratios Stock Y has a beta of 1.20...Ch. 11 - Prob. 19QPCh. 11 - Portfolio Returns Using information from the...Ch. 11 - Prob. 21QPCh. 11 - Portfolio Returns and Deviations Consider the...Ch. 11 - Analyzing a Portfolio You want to create a...Ch. 11 - Prob. 24QPCh. 11 - Prob. 25QPCh. 11 - Prob. 26QPCh. 11 - Prob. 27QPCh. 11 - Prob. 28QPCh. 11 - Correlation and Beta You have been provided the...Ch. 11 - CML The market portfolio has an expected return of...Ch. 11 - Beta and CAPM A portfolio that combines the...Ch. 11 - Beta and CAPM Suppose the risk-free rate is 4.7...Ch. 11 - Systematic versus Unsystematic Risk Consider the...Ch. 11 - SML Suppose you observe the following situation:...Ch. 11 - Prob. 35QPCh. 11 - Prob. 36QPCh. 11 - Prob. 37QPCh. 11 - Minimum Variance Portfolio Assume Stocks A and 8...Ch. 11 - Prob. 1MCCh. 11 - Prob. 2MC
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- Which of the following represent diversifiable risks? the president of a company suddenly resigns the economy goes into a recessionary period a company's product is recalled for defects the Federal Reserve unexpectedly changes interest rates Group of answer choices 2 and 4 only 1, 2, and 3 only 1, 2, and 4 only 1, 2, 3, and 4 1 and 3 onlyarrow_forwardGive typing answer with explanation and conclusion Which of the following represent undiversifiable risks? I. The Federal Reserve raises interest rates. II. A product is recalled because of safety problems. III. The economy slips into a recession. IV. The CEO 's divorce settlement forces him to sell off half of his stock holdings.arrow_forwardRecession, inflation, and high interest rates are economic events that are best characterized as being a. company-specific risk factors that can be diversified away. b. among the factors that are responsible for market risk. c. risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers. d. irrelevant except to governmental authorities like the Federal Reserve. e. systematic risk factors that can be diversified away.arrow_forward
- You are considering investing in Ford Motor Company. Which of the following are examples of diversifiable risk? I. Risk resulting from possibility of a stock market crash. II. Risk resulting from uncertainty regarding a possible strike against Ford. III. Risk resulting from an expensive recall of a Ford product. IV. Risk resulting from interest rates decreasing. A. I only B. I, II, III, IV C. II, III D. I and IVarrow_forwardSuppose company Z is already in financial distress and the equity holders are very close to default. Suddenly there is a shock that causes an increase in the standard deviation of the return on company Z's assets. Which of the following correctly describes the new situation faced by company Z? A) Debt value will increase with the shock and equity holder are more likely to default. B) Equity value will increase with the shock and equity holder are less likely to default. C) Both Debt value and equity value will increase but the likelihood of default is unchanged. D) Both debt value and equity value will decrease and the likehood of default will increase.arrow_forwardInflation, recession, and high interest rates are economic events which are characterized as: A. Company-specific risk that can be diversified away. B. Systematic risk that can be diversified away. C. Diversifiable risk. D. Market risk. E. Unsystematic risk that can be diversified away.arrow_forward
- 5) A company's stock price jumped when it announced that its revenue had decreased because of the quality issues of its products. This is an example of ________.A) market riskB) unsystematic riskC) systematic riskD) undiversifiable riskarrow_forwardwhich of the following is an example of unsystematic risk? decrease income tax for all company soft tech won a new sales contract increase in inflammation rate deccrease in government bond ratearrow_forwardWhich one of the following best describes systematic risk in owning the common stock of the Ford Motor Automobile company? a) Lower car sales announced by the auto sector in general b) An increase in the price of steel used in automobiles c) Lower interest rates leading to an increase in the stock market in general d) The Ford Motor Company announcing a large new sales order.arrow_forward
- If you believe the economy is about to go into a recession you might change your asset allocation by selling _______ and buying ______. risky stocks; safe bonds safe bonds; risky stocks defensive stocks; risky stocks defensive stocks; risky bondsarrow_forwardMarket risk is defined as the risk: Question 1Answer a. Incurred by granting loans to companies that do not hold a large market share. b. Incurred in the trading of assets and liabilities due to changes in interest rates, exchange rates and other asset prices. c. That a sudden surge in liability withdrawals may require FIs to liquidate assets at less than fair market prices. d. That an FI loses market share.arrow_forwardDuring the 2008 recession, large financial institutions including investment and insurance companies, were at risk of bankruptcy due to the sub-prime mortgage crisis. Which element of insurance risk best demonstrates this concept? A. the loss produced by the risk must be definite B. the loss produced by the risk must be measurable C. the loss must not be catastrophic D. the loss must be fortuitous or accidentalarrow_forward
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