Financial Management - Study Mode

[#436] Portfolio which consists of perfectly positive correlated assets having no effect of
Correct Answer

(D) diversification

Explanation

Solution: Portfolio which consists of perfectly positive correlated assets having no effect of diversification. Diversification reduces the variability when the prices of individual assets are not perfectly correlated. In other words, investors can reduce their exposure to individual assets by holding a diversified portfolio of assets. As a result, diversification will allow for the same portfolio return with reduced risk.

[#437] Weighted average of probabilities is classified as
Correct Answer

(B) expected rate of return

Explanation

Solution: Weighted average of probabilities is classified as expected rate of return. The expected return on a financial investment is the expected value of its return. It is a measure of the center of the distribution of the random variable that is the return.

[#438] Market risk and diversifiable risk are two components of
Correct Answer

(A) stock's risk

Explanation

Solution: Market risk and diversifiable risk are two components of stock's risk. Risk in stock and bond investments is all about what might cause you to lose money on those investments.

[#439] Market risk premium is 8% and risk free return is 7% then market required return would be
Correct Answer

(A) 15.00%

Explanation

Solution: Required market return = Market risk premium + Risk free return = 8% + 7% = 15%.

[#440] Range of probability distribution with 68.26% lies within
Correct Answer

(C) (+ 1σ and -1σ)

Explanation

Solution: