1s. Unsystematic risk: through portfolio diversification. is. is compensated for
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Question
1s. Unsystematic risk: through portfolio diversification. is. is compensated for by the risk premium C. is measured by beta. D. cannot be avoided if you wish to participate E is related to the overall economy. in the financial markets. 16. Which one of the following would indicate a portfolio is being effectively diversified A. an increase in the portfolio beta IB. a decrease in the portfolio beta C. an increase in the portfolio rate of return D. an increase in the portfolio standard deviation E. a decrease in the portfolio standard deviation 17, A. B. A stock with an actual return that lies above the security market line has: more systematic risk than the overall market. more risk than warranted based on the realized rate of return. C. yielded a higher return than expected for the level of risk assumed. D. less systematic risk than the overall market. E. yielded a return equivalent to the level of risk assumed. 18. According to the capital asset pricing model, the expected return on a security is A. negatively and non-linearly related to the security's beta. B. negatively and linearly related to the security's beta. C. positively and linearly related to the security's variance. D. positively and non-linearly related to the security's beta. E. positively and linearly related to the security's beta. 19. As we add more diverse securities to a portfolio, the_risk of the portfoli decrease while the A. total; unsystematic B. systematic; unsystematic C. total; systematic D. systematic; total E. unsystematic; total risk will not.Explanation / Answer
15. A. can be effectively eliminated by portfolio diversification. is the correct option.
Explanation:
Unsystematic risk can only be reduced or eliminated with portfolio diversification.
16. E. a decrease in the portfolio standard deviation is the correct option.
Explanation:
An effectively diversified portfolio will always lead to minimized standard deviation.
17. C. Yielded a higher return than expected for the level of risk assumed
Explanation:
Actual return line lies on Security market line means actual return is equal to the expected return. So if the actual return that lies above the security line it means it has yielded a higher return than expected for the level of risk assumed.
18. E. Positively and linearly related to the security's beta.
As per CAPM E(r) = Rf + Beta (Rm - Rf)
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