Finance Ch 6
Company unique risk can be virtually eliminated with a portfolio consisting of approximately 20 securities
True
Which of the following has historically been the least risky investment?
U.S. Treasury bills
The portfolio beta is simply the sum of the betas of the individual stocks in the portfolio
False
Proper diversification generally results in the elimination of risk.
False
Which of the following is also referred to as idiosyncratic risk?
Company specific risk
Asset allocation is not recommended by financial planners because mixing different types of assets such as stocks with bonds, makes it more difficult to track performance and adjust portfolios to changing market conditions
False
Changes in the general economy, like changes in interest rates or tax laws, represent what type of risk?
Market risk
How can investors reduce the risk associated with an investment portfolio?
Purchase a variety of securities
A stock with a beta of 1 has a systematic or market risk equal to the broad market
True
A stock with a beta of 1.4 has 40% more variability in returns than the average stock
True
Small company stocks have historically had higher average annual returns than large company stocks, and also a higher risk premium
True
The benefits of diversification occur as long as the investments in a portfolio are not perfectly positively correlated.
True