(b) (c) Explain how can a portfolio's risk be reduced through diversification? Is there any limit...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
(b) (c) Explain how can a portfolio's risk be reduced through diversification? Is there any limit on the benefits of diversification? Explain. ABC has a standard deviation of 42 percent per year and a beta of 0.2 while XYZ has a standard deviation of 25 percent and a beta of 0.8. Which stock is a safer investment for a diversified investor? Explain.< During the years from 2016 to 2020, the return of Ace Ltd and the S&P 500 are as follows: Ace Ltd S&P 500 2016 0.25 0.22 2017¹ 0.11 0.15 2018 0.03 0.06 2019¹ 0.17 0.15 2020 0.1 0.14 Calculate the average return and standard deviation of Ace Ltd and the S&P 500. Which one is a better investment?< (b) (c) Explain how can a portfolio's risk be reduced through diversification? Is there any limit on the benefits of diversification? Explain. ABC has a standard deviation of 42 percent per year and a beta of 0.2 while XYZ has a standard deviation of 25 percent and a beta of 0.8. Which stock is a safer investment for a diversified investor? Explain.< During the years from 2016 to 2020, the return of Ace Ltd and the S&P 500 are as follows: Ace Ltd S&P 500 2016 0.25 0.22 2017¹ 0.11 0.15 2018 0.03 0.06 2019¹ 0.17 0.15 2020 0.1 0.14 Calculate the average return and standard deviation of Ace Ltd and the S&P 500. Which one is a better investment?<
Expert Answer:
Answer rating: 100% (QA)
Diversification is a risk management strategy that involves spreading investments across different assets or asset classes By diversifying a portfolio an investor can reduce the overall risk of their ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
Students also viewed these accounting questions
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-6. On December 12, Irene purchased the building where her store is located. She paid...
-
Assume that Polaris manufactures and sells 60,000 units of a product at $ 11,000 per unit in domestic markets. It costs $ 6,000 per unit to manufacture ($ 4,000 variable cost per unit, $ 2,000 fixed...
-
Here are some data for five companies in the same industry: You have been asked to calculate a measure of the industry price?earnings ratio. Discuss the possible ways that you might calculate such a...
-
This is a more difficult but informative problem. James Brodrick & Sons, Inc. is growing rapidly and, if at all possible, would like to finance its growth without selling new equity. Selected...
-
When the atmospheric pressure is increased on a balloon, the volume of the balloon will: (a) Increase (b) Decrease (c) Stay the same (d) None of these
-
Brewster Company produces a product that requires four standard pounds per unit. The standard price is $6.80 per pound. If 1,500 units required 6,400 pounds, which were purchased at $6.50 per pound,...
-
Program for find distance between two Coordinate points of (x1,y1), (x2,y2)?
-
Northern Tractor is a manufacturer of commercial and consumer garden tractors. In their 30 years of operation Northern has followed a traditional manufacturing process that included maintaining a...
-
Withdrawal Amount. Over the years, Ahmed and Aamina El- zayaty, of Berkeley, California, have accumulated $200,000 and $220,000, respectively, in their employer-sponsored retirement plans. If the...
-
Write a method integerPower (base, exponent) that returns the value of base exponent as an integer. For example, integerPower (3,4) calculates 3 4 or (3*3*3*3) and returns 81. Assume that exponent is...
-
What should you do to support this lady and refer her to someone who can help her? One elderly lady has come to you privately and shy admitted to you that she was physically abused by two 16 year old...
-
Reflect on these four techniques utilised. Identify if the method was executed effectively and if it achieved the desired reaction. Explain if the execution of the technique could be improved in...
-
Classifiy the partnership's items below as either ordinary business income or separately stated item. Sales $75,000 Ordinary Income/expense Cost of Goods Sold $50,000 Ordinary Income/expense Office...
-
A country is operating below full employment. a. Illustrate this economy on a fully-labeled aggregate demand-aggregate supply model. Include aggregate demand, short-run aggregate supply, and long-run...
-
The monthly market demand function for taxi service in Vancouveris given by Qd = 7,000 500P, and the market supply function is Qs= 500P 1,000, where the quantity is in terms of trips and theprice...
-
Refer to the data for problem 13-36 regarding Long Beach Pharmaceutical Company. Required: Compute each division's residual income for the year under each of the following assumptions about the...
-
For each of the following cases, indicate the filing status for the taxpayer(s) for 2012 using the following legend: A - Single B - Married, filing a joint return C - Married, filing separate returns...
-
Larry and Lisa Williams, both 33 years old, have been married for 9 years. They live at 638 Arctic Way, Fairbanks, AK 99701. Lisa's Social Security number is 445- 81-1423 and Larry's is 798-09-8526....
-
Frank, age 35, and Joyce, age 34, are married and file a joint income tax return for 2012. Their salaries for the year total $83,000 and they have taxable interest income of $4,000. They have no...
-
Deflation is the rate of decline in the aggregate price level. Why might unexpected deflation be of particular concern to someone managing a bank?
-
Analyze how a government regulates and supervises the financial system to contain risk.
-
One goal of the regulatory reforms that followed the 2007-2009 financial crisis was to address the too-big-to-fail problem associated with large institutions. How did the reforms try to address this...
Study smarter with the SolutionInn App