E140 1, which portfolio has the least risk during the period 1900-2011? (05) A 5
ID: 2792189 • Letter: E
Question
E140 1, which portfolio has the least risk during the period 1900-2011? (05) A 5 Common stocks Treasury bills None of the answers 10 11 Answer 12 13 2. The type of the risk that can be eliminated by diversification is called: (0.5) interest rate default risk riskmarket risk unique risk 14 A 15 16 17 18 19 20 Answer is the slope on the Security Market Line (05) market risk premium (ie, quity risk premium) risk-free rate market rate of return beta 3. The 24 A 25 8 27 Answer sheet PM 11:22 11/27/2017 ENG qq)^Explanation / Answer
1.
A portfolio of treasury bill has the least risk during the period 1900-2011. This is because T bill are backed by government and there is very lease likely that government will default.
Option (C) is correct answer.
2.
Diversifiable risk (unsystematic risk) are type of risk that can be reduce or eliminate using diversification of stocks. Unique risk is type of risk that can be eliminate by diversification.
Option (D) is correct answer.
3.
Market risk premium is considered as slope of security market line.
Option (A) is correct answer.
4.
As the number of stock in portfolio increases, the unique risk or firm specific risk of company decreases and become equal to market risk. This type of risk is measured by standard deviation.
Option (C) is correct answer.
5.
Security market line is a graphical representation of firms required rate of return and market risk (Beta). The slope of security market line is represented by market risk premium. Since, it is related to market risk, so it cannot be controlled by any specific firm manager,
Option (C) is correct answer.
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