You are planning for retirement and must decide whether to purchase only your employer’s stock for your 401(k) or, instead, to buy a mutual fund that holds shares in the 500 largest companies in the world. From the perspective of both idiosyncratic and systematic risk, explain how you would make your decision.
Answer to relevant QuestionsFor each of the following actions, identify whether the method of risk assessment motivating your action is due to the value at risk or the standard deviation of an underlying probability distribution. a. You buy life ...Give an example of systematic risk for the U.S. economy and how you might reduce your exposure to such a risk.Plot the percentage change from a year earlier of the value of the S&P 500 stock index (FRED code: SP500). Visually, has the risk of the S&P 500 index changed over time?You are considering purchasing a consol that promises annual payments of $4.a. If the current interest rate is 5 percent, what is the price of the consol?b. You are concerned that the interest rate may rise to 6 percent. ...You are about to purchaseyour first home and receive an advertisement regarding adjustable-rate mortgages (ARMs). The interest rate on the ARM is lower than that on a fixed rate mortgage. The advertisement mentions that ...
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