CH6 Finance

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

Beta is a measurement of the relationship between a security's returns and the general market's returns.

True

Beta represents the average movement of a company's stock returns in response to a movement in the market's returns.

True

The benefits of diversification occur as long as the investments in a portfolio are not perfectly positively correlated.

True

The relevant risk to an investor is that portion of the variability of returns that cannot be diversified away.

True

Total risk equals systematic risk plus unsystematic risk.

True

Proper diversification generally results in the elimination of risk.

False

Company unique risk can be virtually eliminated with a portfolio consisting of approximately 20 securities.

True

Diversifying among different kinds of assets is called asset allocation.

True

In general, the required rate of return is a function of (1) the time value of money, (2) the risk of an asset, and (3) the investor's attitude toward risk.

True