Finance midterm 2
Which of the following are examples of systematic risks
-an increase in the federal funds rate -an increase in the corporate tax rate
which of the following are examples of a portfolio?
-investing $100,000 in a combination of US and Asian stocks -hOLDING $100,000 investment in a combination of stocks and bonds -investing $100,00 in the stocks of 50 publicly traded corporations
Which are examples of unsystematic risk
-labor strikes -changes in management
Which of the following are examples of systematic risk?
-regulatory changes in tax rates -future rates of inflation
Which of the following are examples of unsystematic risks faced by a firm?
-the death of the CEO -A hostile takeover attempt by a competitor
How do you compute the variance?
1. Calculate the expected return 2. Determine the squared deviation from the expected return 3. Multiply each squared deviation by its probability 4. the result is the variance
The weighted average of the standard deviations of the assets in portfolio C is 12.9%. Which of the following are possible values for the standard deviation of the portfolio?
12.9 and 10.9%-- The standard deviation of a portfolio is less than or equal to the weighted average of the standard deviations of the assets in the portfolio
If the variance of a portfolio is .0025, what is the standard deviation?
5%
True or False: Systematic risk will impact all securities in every portfolio equally
False(although it is possible, it is highly unlikely that systematic risk will affect all firms equally)
What is unsystematic risk?
It is a risk that affects a single asset or a small group of assets
what is systematic risk
It is a risk that pertains to a large number of assets.
What is an uncertain or risky return?
It is the portion of return that depends on information that is currently unknown.
What is the def if expected return?
It is the return that an investor expects to earn on a risky asset in the future
The increase in the number of stocks in a portfolio results in a ____ in the average standard deviation of annual portfolio returns
decline
If the variance of a portfolio increases, then the portfolio standard deviation will _________
increase
There is ___ correlation between the unsystematic risk of 2 companies from different industries
no
If you wish to create a portfolio of stocks, what is the required minimum number of stocks?
you must invest in stocks of more than one corporation
