Combining two assets having perfectly negatively correlated returns will result in the creation of a portfolio with an overall risk that: Group of answer choices decreases to a level below that of either asset. remains unchanged. increases to a level above that of either asset. stabilises to a level between the asset with the higher risk and the asset with the lower risk.
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Finance
Combining two assets having perfectly negatively correlated returns will result in the creation of a portfolio with an overall risk that: Group of answer choices decreases to a level below that of either asset. remains unchanged. increases to a level above that of either asset. stabilises to a level between the asset with the higher risk and the asset with the lower risk.
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- Indicate 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.Select all that are true. The risk-return tradeoff is generally worse for individual assets than for portfolios because Group of answer choices combining assets into portfolios reduces risk without reducing expected returns by combining assets into portfolios, one can hold risk constant and get a higher expected return by combining assets into portfolios, one can hold expected return constant and reduce risk by combining assets into portfolios, one eliminates risk and still has a positive expected returnWhich of the following statements is most correct? A. Combining positively correlated assets having the same expected return results in a portfolio with the same level of expected return and a lower level of risk. B. Combining negatively correlated assets having the same expected return results in a portfolio with the same level of expected return and a lower level of risk. C. Combining positively correlated assets having the same expected return results in a portfolio with a lower level of expected return and a lower level of risk. D. Combining negatively correlated assets having the same expected return results in a portfolio with a lower level of expected return and a lower level of risk.
- In an efficient market when asset expected returns are plotted against asset betas, then all assets would be on the security market line A. Because all assets have the same beta B. Because no assets have the same risk premium C. Because all assets have the same reward to risk ratio D. Because all assets have the same systematic risk E. Because all assets have the same average amount of systematic riskIn 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 correlatedWhat 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
- Which of the following statements regarding non-systematic risk, systematic risk and total risk is/are true? Select one or more:a. As the number of assets within a portfolio increases, the total risk of a portfolio will go to zero.b. A riskfree asset must have zero non-systematic risk.c. A well diversified portfolio must have zero systematic riskd. Under the Capital Asset Pricing Model (CAPM).an asset with zero systematic risk must have expected return equal to the riskfree rate.A portfolio is efficient if no other asset or portfolios offer higher expected return with the same (or lower) risk or lower risk with the same (or higher) expected return. Select one: True FalseWhich of the following statements describing the elements of intrinsic valuation is most accurate? a. A simple calculation of present values of expected cashflows of different investments using the risk free rate would be enough to determine which asset is best. b. The risk-free rate is the lowest rate that an investor can earn from short-term investments.c. When the present value of the cashflows is discounted with the appropriate rate end this present value is positive, then the asset providing these cashflows have a value to the investor. d.Cashflows may include depreciatipon expenses and amortization costs.
- Evaluate the following statement: If the financial market is frictionless and complete, the asset with higher expected return also exhibits higher return volatility (i.e., standard deviation of returns).Adding alternative investments to a traditional portfolio can increase expected returns and reduce systematic risk. Select one: True FalseTo obtain the maximum reduction in risk, an investor should combine assets that * A.are negatively correlated. B.have a correlation coefficient of negative one. C.are uncorrelated. Option 5 D.have a correlation coefficient of positive one.