37. Risk that affects at most a small humbér of assets is called risk. A. portfo

Question

37. Risk that affects at most a small humbér of assets is called risk. A. portfolio B. nondiversifiable C. market D. unsystematic E. total 38. The principle of diversification tells us that: A. concentrating an investment in two or three large stocks will elminate all of your risk. B. concentrating an investment in three companies all within the same industry will greatly reduce your overall risk. C. sprea D. spreading E. spreading an investment across many diverse assets will eliminate some of the risk. ding an investment across five diverse companies will not lower your overall risk at all. an investment across many diverse assets will eliminate all of the risk. 39. You are considering purchasing stock S. This stock has an expected return of 8% if the economy booms and 3% if the economy goes into a recessionary period. The overall expected rate of return this stock will: be equal to one-half of 8% if there is a 50% chance of an economic boom. B. vary inversely with the growth of the economy. C. increase as the probability of a recession increases. D. be equal to 75% of 8% if there is a 75% chance of a boom economy E. increase as the probability of a boom economy increases. The characteristic line is graphically depicted as: A. the plot of the relationship between beta and expected return. B. the plot of the returns of the security against the beta. C. the plot of the security returns against the market index returns. D. the plot of the beta against the market index returns. E. None of these.

Explanation / Answer

37

D - Unsystematic

Unsystematic - A risk that affects at most a small number of assets. Also called unique or asset-specific risks

38

E - spreading an investment across many diverse assets will eliminate some of the risk.

If we invest in different classes of companies it will eliminate some risk.

39

D be equal to 75% of 8% if there is a 75% chance of a boom economy.

40

C- The plot of the security returns against the market index returns.

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