Which of the following statements is true? a. the required return on a firm's common stock is, in theory, determined solely by its market risk. if the market risk is known, and if that risk is expected to remain constant, then no other information is required to specify the firm's required return. b. portfolio diversification reduces the variability of returns (as measured by the standard deviation) of each individual stock held in a portfolio. c. if an investor buys enough stocks, he or she can, through diversification, eliminate all of the diversifiable risk inherent in owning stocks. therefore, if a portfolio contained all publicly traded stocks, it would be essentially riskless. d. a security's beta measures its non-diversifiable, or market, risk relative to that of an average stock. e. a stock's beta is less relevant as a measure of risk to an investor with a well-diversified portfolio than to an investor who holds only that one stock.
D. A security's beta measures its non-diversifiable, or market, risk relative to that of an average stock.
C. A security's beta measures its non-diversifiable, or market, risk relative to that of an average stock.
The correct answer is False.
Diversification is a method to reduce the risk of our portfolio by investing in different assets. Its main objective is to improve the profitability we obtain in relation to the risk we assume. By investing in assets that react differently to possible future scenarios, we can avoid extreme situations in our portfolio.
Although diversification does not ensure that we will not lose money, it is one of the main tools we can use to improve the long-term return on risk / return
Non-diversifiable risk, also called systemic risk, is that which is associated with the market as a whole. It is a risk that does not affect any particular company or asset, but when it occurs affects all the assets of a market. Examples of this type of risk would be increases in interest rates, inflation, wars, changes in government, etc. In short, we are talking about a type of risk that the investor must assume as inherent in the activity of investing. We cannot eliminate this risk through diversification.
Diversifiable risk, also known as non-systemic risk, is the specific risk to each company or asset in which we can invest. The most common sources of this type of risk are business risk and the financial risk of bankruptcy of a specific asset. As prudent investors, we can use diversification to limit the impact that such events can have on all our investments.
answer; blank(1); /// whitelisting; blank(2); // blacklisting;