Exam 5: Risk and Portfolio Management

The numerical value of beta for the market equals 1.

Inflation, which is a general decline in prices, is the source of financial risk.

(This problem illustrates the computation of beta coefficients may be solved using a statistics program or Excel.)The returns on the market and stock A and stock B are as follows: Compute the beta coefficient for each stock and interpret the results of the computations.

If the dispersion around a stock's return increases

By accepting more risk, the investor will increase the realized return.

For diversification to reduce risk,

Unsystematic risk refers to factors that are unique to the specific asset.

A portfolio's beta coefficient tends to be stable over time.

The dispersion around a stock's return is one measure of risk.

Investors who want to bear less risk should acquire stocks whose beta coefficients are

If the return on two stocks is highly and positively correlated (i.e., correlation coefficient=+1.0), combining these stocks will reduce the risk associated with the portfolio.

If a stock has a beta of 1.0, it is risk-free stock.

The tendency of individual stock prices to move together is one source of systematic risk.

The expected return on an investment in stock is

Exchange rate risk refers to fluctuations in the prices of foreign currencies (i.e., foreign exchange).

If a stock's return has a large standard deviation, that suggests the stock has little risk.