1. Which of the following statements about diversification is correct? a. The sy
ID: 2803918 • Letter: 1
Question
1. Which of the following statements about diversification is correct?
a. The systematic risk of a stock with a beta of zero is equal to the market risk.
b. A stock with a beta of 1.0 has maximum nondiversifiable risk.
c.Portfolio diversification reduces the variability of returns on an individual stock.
d. When two perfectly positively correlated stocks with the same risk are combined, the portfolio risk is equal to the risk associated with the individual stocks.
e. When the company specific risk has been diversified, the inherent risk that remains is the market risk, which is constant for all securities in the market.
2. The days sales outstanding (DSO) ratio of a firm identifies:
a. how much investors are willing to pay for the firm's stock for each dollar of reported profits.
b. the profit (earnings) per dollar of sales.
c. how effectively the firm uses its plant and equipment to help generate sales.
d. the extent to which a firm's net operating income can safely decline.
e. the average length of time a firm must wait after making a credit sale before receiving cash.
3.A bond's value will increase with increases in interest rate over time.
a. True
b. False
Explanation / Answer
The correct statement is E
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Their are two type of risk associated with every investment, systematic risk, that is non diversifiable risk, another one is unsystematic risk or diversifiable risk.
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