The risk that inflation rates are likely to increase in the next year is an example of a common risk
TRUE
A portfolio of stocks where each stock has a large component of independent risk benefits when such stocks are held in a portfolio, because the independent risks are averaged out. This is also referred to as diversification of risks
TRUE
A portfolio of stocks can achieve diversification benefits if the stocks that comprise the portfolio are
not perfectly positively correlated
A stock whose return does not depend on overall economic conditions has a low systematic risk
FALSE
In general, it is possible to eliminate______ risk by holding a large portfolio of assets
unsystematic
A company's stock price jumped when it announced that it's revenue had decreased because of the quality issues of it's products. This is an example of
Unsystematic risk
As we increase the number of stocks in a portfolio, the standard deviation of returns of the portfolio
Decreases
Because investors can eliminate unsystematic risk "for free" by diversifying their portfolios, they
do not require a risk premium for bearing it
The risk premium is a security determined by it's ____________ risk and does not depend on it's __________ risk
systematic, unsystematic
Which is not a diversifiable risk?
the risk that oil prices will rise, increasing production costs
Stocks have both diversifiable risks and undiversifiable risk, but only diversifiable risk is rewarded with higher expected returns
FALSE
The volatility of an individual stock is more than the volatility of a well-diversified portfolio of stocks
TRUE
Correlation is the degree to which the returns of two stocks share common risks
TRUE
Stocks tend to move together if they are affected by
common economic events
For each 1% change in market portfolio's excess return, the investment's excess return is expected to change by_________ due to the risks that is has in common with the market
beta
The beta of a market portfolio is
1
Companies that sell household products and food have very little relation to the state of the economy because such basic needs do not go away. These stocks tend to have _________ betas
low
The Capital Asset Pricing Model (CAPM) says that the risk premium on a stock is equal to it's beta times the market risk premium
TRUE
Capital Asset Pricing Model asserts that the expected return
is equal to the risk - free rate plus a risk premium for systematic risk