1.Which of the following statements is most correct? Diversifiable risk is cause
ID: 2655266 • Letter: 1
Question
1.Which of the following statements is most correct?
Diversifiable risk is caused by events unique to a single business.
Portfolio risk is caused by events unique to a single business.
Adding similar investments to a portfolio reduces risk more than adding randomly chosen investments does
It is impossible to reduce diversifiable risk.
None of the above statements is correct.
2.Advantages of short-term financing (as compared to long-term financing) include which of the following?
Loans can be obtained faster.
The interest rate on borrowed funds is generally lower.
Interest costs are relatively stable over time.
Answers (a) and (b) are correct.
Answers (a), (b), and (c) are correct.
3.Which of the following statements about the beta coefficient is false?
A stock's beta coefficient measures its volatility relative to the market portfolio.
A stock's beta coefficient can theoretically be calculated using the capital asset pricing model.
A stock's reported beta coefficient is based on forecasted future volatility.
A stock with a beta coefficient greater than 1.0 is said to be riskier than the market portfolio.
Under the capital asset pricing model, a stock with a beta coefficient less than 1.0 would have a required rate of return that is lower than the required rate of return on the market portfolio.
4.Investors will be most likely to purchase a stock if which of the following conditions holds?
E(Re) < R(Re)
E(Re) = R(Re)
E(Re) > R(Re)
E(Re) = RF
RPe = 0
Explanation / Answer
.Which of the following statements is most correct?
Diversifiable risk is caused by events unique to a single business.
.
2.Advantages of short-term financing (as compared to long-term financing) include which of the following?
Loans can be obtained faster.
The interest rate on borrowed funds is generally lower..
Answers (a) and (b) are correct.
3.Which of the following statements about the beta coefficient is false?
A stock's reported beta coefficient is based on forecasted future volatility.
4.Investors will be most likely to purchase a stock if which of the following conditions holds?
E(Re) > R(Re)
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