EBK PRINCIPLES OF MANAGERIAL FINANCE
14th Edition
ISBN: 9780100666757
Author: ZUTTER
Publisher: YUZU
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Chapter 8.3, Problem 8.9RQ
Summary Introduction
To discuss:
Correlation between
Introduction:
Portfolio refers to a set of financial investments such as debentures, stocks, bonds and mutual funds owned by the investor.
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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?
In order to benefit from diversification, the returns on assets in a portfolio must:
Answer
a. Not be perfectly positively correlated
b. Have the same idiosyncratic risks
c. Be perfectly positively correlated
d. Be perfectly negatively correlated
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
Chapter 8 Solutions
EBK PRINCIPLES OF MANAGERIAL FINANCE
Ch. 8.1 - Prob. 1FOECh. 8.1 - What is risk in the context of financial decision...Ch. 8.1 - Prob. 8.2RQCh. 8.1 - Prob. 8.3RQCh. 8.2 - Explain how the range is used in scenario...Ch. 8.2 - Prob. 8.5RQCh. 8.2 - Prob. 8.6RQCh. 8.2 - What does the coefficient of variation reveal...Ch. 8.3 - What is an efficient portfolio? How can the return...Ch. 8.3 - Prob. 8.9RQ
Ch. 8.3 - How does international diversification enhance...Ch. 8.4 - Prob. 8.11RQCh. 8.4 - Prob. 8.12RQCh. 8.4 - Prob. 8.13RQCh. 8.4 - What impact would the following changes have on...Ch. 8 - Prob. 1ORCh. 8 - Prob. 8.1STPCh. 8 - Prob. 8.2STPCh. 8 - Prob. 8.1WUECh. 8 - Prob. 8.2WUECh. 8 - Prob. 8.3WUECh. 8 - Prob. 8.4WUECh. 8 - Prob. 8.5WUECh. 8 - Prob. 8.6WUECh. 8 - Prob. 8.1PCh. 8 - Prob. 8.2PCh. 8 - Prob. 8.3PCh. 8 - Prob. 8.4PCh. 8 - Prob. 8.5PCh. 8 - Learning Goal 2 P8-6 Bar charts and risk Swans...Ch. 8 - Prob. 8.7PCh. 8 - Prob. 8.8PCh. 8 - Prob. 8.9PCh. 8 - Prob. 8.10PCh. 8 - Prob. 8.11PCh. 8 - Prob. 8.12PCh. 8 - Prob. 8.13PCh. 8 - Prob. 8.14PCh. 8 - Learning Goal 4 P8- 15 Correlation, risk, and...Ch. 8 - Prob. 8.16PCh. 8 - Learning Goal 5 P8- 17 Total, nondiversifiable,...Ch. 8 - Prob. 8.18PCh. 8 - Prob. 8.19PCh. 8 - Prob. 8.20PCh. 8 - Prob. 8.21PCh. 8 - Prob. 8.22PCh. 8 - Prob. 8.23PCh. 8 - Prob. 8.24PCh. 8 - Prob. 8.25PCh. 8 - Prob. 8.26PCh. 8 - Prob. 8.27PCh. 8 - Learning Goal 6 P8- 28 Security market line (SML)...Ch. 8 - Prob. 8.29PCh. 8 - Prob. 8.30PCh. 8 - Prob. 8.31PCh. 8 - Prob. 1SE
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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 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)?arrow_forwardWhat 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 assumedarrow_forwardWhat does it mean that portfolio diversification can reduce risk, and how does the efficient frontier logically fit into this discussion? include correlation, asset allocation, and asset classes or benchmarks in your answer.arrow_forward
- What does it mean to adopt a maturity matching approach to financing assets, includingcurrent assets? How would a more aggressive or a more conservative approach differ fromthe maturity matching approach, and how would each affect expected profits and risk? Ingeneral, is one approach better than the others?arrow_forwardWhat is diversification? How does the risk of a diversified portfolio compare with the risks of the individual assets it contains?arrow_forwardIndicate whether its True or False. Then write the explanation! In the presence of diversification benefits, when we combine two assets together into a portfolio, the systematic risk of the portfolio will be less than the weighted average systematic risk of the individual assets in the portfolio.arrow_forward
- 1. How to compare different assets in investment selection process? 2. What are the quantitative characteristics of the assets and how to measure them? 3. How does one asset in the same portfolio influence the other one in the same portfolio? 4. And what could be the influence of this relationship to the investor’s portfolio? 5. What is relationship between the returns on an asset and returns in the whole market (market portfolio)?arrow_forwardThe 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?arrow_forwardThe risk of the portfolio depends not only on the individual risks of the assets but also on the ________ between the asset returns.arrow_forward
- How does the creation of a portfolio reduce risk? What type of assets should be included in a diverse portfolio? Why should they be included?arrow_forward. The Capital asset Pricing Model (CAPM) contends that there is systematic & unsystematic risk for an individual security. Which is the relevant risk variable & why it’s relevant?arrow_forwardWhy are rates of return superior to dollar returns when comparingdifferent potential investments?arrow_forward
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