What happens when returns on stock a increase?
When returns on Stock A increase, returns on Stock B also increase. In general, this would mean that Stocks A and B are positively correlated. The risk in a portfolio will increase if more stocks that are negatively correlated with other stocks are added to the portfolio.
How does stock price affect the risk in a portfolio?
The risk in a portfolio will increase if more stocks that are negatively correlated with other stocks are added to the portfolio. When returns on Stock A increase, returns on Stock B also increase. In general, this would mean that Stocks A and B are positively correlated. Who are the experts?
What happens when the expected rate of inflation increases?
(B) If the expected rate of inflation increases but the market risk premium is unchanged, the required returns on the two stocks should increase by the same amount. 60. Consider the following average annual returns for Stocks A and B and the Market.
Are the stocks' returns positively correlated with one another?
The stocks' returns are positively but not perfectly positively correlated with one another, i.e., the correlations are all between 0 and 1.
How to determine portfolio risk?
1) A portfolio's risk is not equal to the weighted average of the individual stocks' standard deviations. True or False 2) The market risk component of the total portfolio risk can be reduced by randomly adding stocks to the portfolio. True or False 3) When returns on Stock A increase, returns on Stock B also increase. In general, this would mean that Stocks A and B are positively correlated. True or False 4) The risk in a portfolio will increase if more stocks that are negatively correlated with other stocks are added to the portfolio. True or Flase Focus
What is portfolio risk?
1) A portfolio's risk is not equal to the weighted average of the individual stocks' standard deviations. True or False 2) The market risk component of the total portfolio risk can be reduced by randomly adding stocks to the portfolio. True or False 3) When returns on Stock A increase, returns on Stock B also increase.
What is the difference between portfolio A and portfolio B?
Portfolio A has only one stock, while Portfolio B consists of all stocks that trade in the market, each held in proportion to its market value. Because of its diversification, Portfolio B will by definition be riskless. FALSE. Stock A has a beta of 0.8, Stock B has a beta of 1.0, and Stock C has a beta of 1.2.
What is the standard deviation of a stock?
Each of the stocks has a standard deviation of 25%. The returns on the three stocks are independent of one another (i.e., the correlation coefficients all equal zero). Assume that there is an increase in the market risk premium, but the risk-free rate remains unchanged.
What does risk averse investors require?
Risk-averse investors require higher rates of return on investments whose returns are highly uncertain, and most investors are risk averse. Assume that investors have recently become more risk averse, so the market risk premium has increased. Also, assume that the risk-free rate and expected inflation have not changed.