Which type of risk is essentially eliminated by diversification? A) perceived risk B) market risk C) systematic risk D) unsystematic risk | Homework.Study.com (2024)

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• 7) Which of the following concerning systematic and/or unsystematic risk is not correct? A.. Unsystematic risk can be reduced through diversification of a portfolio B. A coefficient of determination
• MULTIPLE CHOICE: Choose the one alternative that best completes the statement or answers the question. Systematic risk: A) cannot be eliminated through diversification. B) is the risk eliminated through diversification. C) represents the risk affectin
• How does diversification affect volatility, systematic, and unsystematic risk?
• Which of the following is correct? A. Diversification reduces common and independent risks. B. Diversification is a way of spreading risk across investments, rather than actually reducing risk. C. Diversification eliminates risk unique to a particular st
• What is the difference between market risk and idiosyncratic risk?
• Which of the following would be considered a systematic risk? a. Business Risk b. Financial Risk c. Company Specific Risk d. Market Risk
• What is diversification? How does it reduce the risk of a financial portfolio?
• Which of the following is a true statement about diversification? A) Diversification allows you to eliminate all risks when investing in stocks. B) The more correlated the stocks in your portfolio a
• Identify the types of firm-specific factors that increase a firm's nondiversifiable risk (systematic risk).
• Can you explain why diversification lowers risk?
• 1. What are the primary variables that influence the risk of a portfolio of assets? 2. Distinguish between unsystematic and systematic risk. Under what circ*mstances are investors likely to ignore th
• Identify the types of firm-specific factors that increase a firm's diversifiable risk (idiosyncratic risk or nonsystematic risk).
• Describe what portfolio diversification is and explain why it works to reduce risk.
• Which one of the following is defined as a type of risk that affects all securities in a market? A. Unique B. Diversifiable C. Systematic D. Asset-specific E. Total.
• What role does diversification play in risk management strategies?
• What are the differences between systematic and unsystematic risk?
• Which of the following types of risk affect bonds? I. Call risk II. Business risk III. Purchasing power risk IV. Liquidity risk A) I, III, and IV only B) I, II, III, and IV C) III and IV only D) II, III, and IV only
• Which of the following statements is most correct concerning diversification and risk? a) Diversification is mainly achieved by the selection of individual securities for each type of asset held in a portfolio. b) Large company stocks and small company
• 1. What are the various names for unsystematic risk? 2. How can a portfolio's unsystematic risk be eliminated in theory? 3. Why in the real world might it be difficult to completely eliminate unsyst
• Changes in the general economy, like changes in interest rates or tax laws, represent what type of risk? A) company-unique risk B) market risk C) unsystematic risk D) diversifiable risk
• What are the three types of risk? Give an example for each.
• Can you explain how and why the diversification reduces the portfolio risk?
• Diversification decreases the variability of both unique and market risk. a. True b. False
• (a) Define the risk of an investment. (b) What types of firms are particularly risky?
• An asset's total risk equals its systematic risk, which cannot be eliminated through diversification, plus its problematic risk, which can be eliminated. a. True. b. False.
• True or false? It is not possible to eliminate or reduce market risk through diversification.
• An assets total risk equals its systematic risk, which cannot be eliminated through diversification, plus its problematic risk, which can be eliminated. a. True. b. False.
• Explain the difference between systematic risk and un-systemic risk. Can a financial professional ever rid a portfolio of systematic risk?
• What is the Market Risk Premium?
• What is the different between Systematic and Systemic risk and how can be eliminated?
• Determine if the following statement is true or false. An assets total risk equals its systematic risk, which cannot be eliminated through diversification, plus its problematic risk, which can be elim
• What is the relationship between business risk, financial risk, and beta (systematic or market risk)? Explain.
• Which of the following statements is MOST correct concerning diversification and risk? Diversification is mainly achieved by the selection of individual securities for each type of asset held in a por
• What are some statistical measures of risk and what type of risk do they measure?
• Explain how diversification can reduce the risk of a portfolio of assets to below the weighted average of the risk of the individual assets. Explain with numerical example.
• What is the difference between fundamental risk and price risk?
• If systematic risk affects any stock or share, how can the risks be minimized?
• Which of the following statement is FALSE? 1) In a well-diversified portfolio, an investor is compensated for systematic risk only. 2) All correctly priced securities have the same reward-to-risk ra
• What is meant by systematic risk factors?
• What is the main difference between firm-specific and systemic credit risk? a. Firm-specific risk can be managed by proper underwriting and diversification in a loan portfolio. b. Systemic risk affects all borrowers. c. Firm-specific risk is determined
• What are the three types of risk that affect money market investments?
• Discuss how diversification affects risk and how correlation between securities affects portfolio risk.
• a. What is meant by systematic risk factors? b. What is the difference between term structure and non-term structure risk factors?
• Which of the following statements is correct? a. If an investor buys enough stocks, he or she can, through diversification, eliminate all of the diversifiable risk inherent in owning stocks. Therefor
• a. How does international diversification enhance risk reduction? b. When might international diversification result in subpar returns? c. What are political risks, and how do they affect international diversification?
• What are the different types of business risk?
• Which of the following is an example of business risk? a.Default risk b.Prepayment risk c.Strategic risk d.Currency risk e.Equity risk
• Define systematic and nonsystematic risk, and identify differences when considering risk management.
• What is the difference between systematic and unsystematic risks?
• Which of the following statements is most correct concerning diversification and risk? A) Risk-averse investors often choose companies from different industries for their portfolios because the correlation of returns is less than if all the companies came
• Identify and describe two or more risks that you would categorize as systematic, and one risk that you would categorize as idiosyncratic. Which risk factors can you identify as being dependent on chan
• Discuss the different types of risk management techniques. Avoidance Loss Prevention Loss Reduction Separation Duplication Diversification
• Options can be used either to scale up or reduce overall protfolio risk. a) What are some examples of risk-increasing and risk-reducing options strategies? Explain each. b) Why do you think the most a
• Which of the following statements concerning risk are correct? I. Systematic risk is measured by beta. II. The risk premium increases as unsystematic risk increases. III. Systematic risk is the only
• What is market risk? Illustrate this risk with a foreign exchange example.
• Suppose we have two assets, A and B. What correlation levels between the two assets will yield diversification benefits in terms of portfolio risk reduction? At what correlation level will there be no
• Distinguish between unsystematic and systematic risk.
• A) Against what types of risks should a wealth-maximizing firm try to purchase insurance? B) What types of risks should be self-insured?
• What involves the sale or marketing of securities, the analysis of securities, and the management of risk through portfolio diversification?
• In broad terms, why is some risk diversifiable? Why are some risks nondiversifiable? Does it follow that an investor can control the level of unsystematic risk in a portfolio, but not the level of systematic risk?
• 1. What is the correlation with the greatest potential for diversification? A: -1.0 B: -0.5 C: 0.0 D: +1.0 E: +2.0 2. Regular, periodic investments in security without regard to price is A: inc
• Which of the following statements is true? 1. It is very difficult for investors to remove their exposure to unsystematic risk. 2. It is very easy for investors to remove their exposure to systematic
• A) What is the difference between a diversifiable risk and a non-diversifiable risk? B) Should stock portfolio managers try to eliminate both types of risk?
• What security characteristics are most important in the determination of the variance of a well-diversified portfolio?
• Which of the following statements in correct? a)An investor can eliminate virtually all market risk if he or she holds a very large and well-diversified portfolio of stocks. b)The higher the correla
• Which of the following statements is most correct? a. Diversifiable risk refers to risk arising from macro factors such as Fed's monetary policy. b. In a fully diversified portfolio of stocks, only market risk remains. c. A stock's standard deviation m
• True or false: Complete diversification means that the portfolio is no longer subject to market risk.
• Describe what happens to portfolio risk as more and more assets are added to a portfolio. Are there advantages to international diversification?
• Which of the following correlation coefficients will produce the least diversification benefit? A. -0.6 B. -0.3 C. 0 D. 0.8
• A) Explain the difference between pure risk and speculative risk. B) How does diversifiable risk differ from non-diversifiable risk?
• Which of the following correlation coefficients will produce the most diversification benefits? A. -0.6 B. -0.9 C. 0 D. 0.4
• Which of the following correlation coefficients will produce the most diversification benefits? a. -0.6 b. -0.9 c. 0.0 d. 0.4
• Why does portfolio diversification usually help financial managers to reduce risk?
• What type of option strategy could be considered insurance for a portfolio? Please explain graphically.
• A) Explain the difference between systematic and unsystematic risk. B) Explain how beta captures systematic risk.
• Distinguish among three types of project risk: stand-alone, corporate, and market.
• When evaluating different types of investments decisions, businesses evaluate risk vs. what?
• What is the meaning of the market risk premium?
• What is a characteristic of firm-specific risk? a. A pharmaceutical company whose drug resulted in serious side effects faces market risk. b. The higher the firm-specific risk, the lower the expecte
• 1. Describe the various types of risk to which investors are exposed. 2. What is meant by the risk return trade-off? What is the risk-free rate of return? 3. Briefly describe the two basic sources o
• Diversification over many stocks will eventually completely eliminate risk. A. True B. False
• Which of the following statements is FALSE? A. The amount of risk that is eliminated in a portfolio depends on the degree to which the stocks face common risks and their prices move together. B. Corre
• Define Investment Risk Premium (IRP) = (B Market Risk Premium)
• Explain how differences in allocations between the risk-free security and the market portfolio can determine the level of market risk.
• Define or describe the following: Market risk.
• What are ways for companies to increase their level of value-creating diversification? How diversified can a company become before it is likely to create a negative impact on the company's bottom line?
• Complete diversification means that the portfolio is no longer subject to market risk. a. True b. False
• Define Market Risk Premium(MRP) = Rm - Rf.
• What is the relationship between risk (variability) and return?
• What are the benefits of diversification to an investor? What is the key factor determining the extent of these benefits?
• Discuss the similarities and differences between the CML and SML as models of the risk-return tradeoff. Is one model better than the other when evaluating a well-diversified portfolio? Explain.
• Determine the three types of risk that are relevant in capital budgeting. How is each of these risk types measured, and how do they relate to one another?
• Give an example of diversifying risk.
• What are the primary sources of risk, that depository institution managers face? Describe how each risk type potentially affects performance. Provide one financial ratio to measure each type of risk,
• What is basis risk?
• What are the differences between credit risk, market risk, and operational risk?
• Explain the differences between stand-alone risk, diversifiable risk, and portfolio risk.
• How does the risk of portfolio of assets differ from the risk of single asset?
• What are the two components of portfolio risk?