Reading 53: Portfolio Risk and Return: Part II-LOS c 习题精选 2011, additional, following, receive, investor

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Session 12: Portfolio Management
Reading 53: Portfolio Risk and Return: Part II

LOS c: Explain systematic and nonsystematic risk, and why an investor should not expect to receive additional return for bearing nonsystematic risk.

 

 

Which of the following is least likely considered a source of systematic risk for bonds?

A) Purchasing power risk.

B) Market risk.

C) Default risk.

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Default risk is based on company-specific or unsystematic risk.

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Which of the following is the risk that disappears in the portfolio construction process?

A) Systematic risk.

B) Unsystematic risk.

C) Interest rate risk.

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Unsystematic risk (diversifiable risk) is the risk that is eliminated when the investor builds a well-diversified portfolio.

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Which of the following statements about systematic and unsystematic risk is least accurate?

A) Total risk equals market risk plus firm-specific risk.

B) As an investor increases the number of stocks in a portfolio, the systematic risk will remain constant.

C) The unsystematic risk for a specific firm is similar to the unsystematic risk for other firms in the same industry.

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This statement should read, "The unsystematic risk for a specific firm is not similar to the unsystematic risk for other firms in the same industry." Thus, other terms for this risk are firm-specific, or unique, risk.

Systematic risk is not diversifiable. As an investor increases the number of stocks in a portfolio the unsystematic risk will decrease at a decreasing rate. Total risk equals systematic (market) plus unsystematic (firm-specific) risk.

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In the context of the capital market line (CML), which of the following statements is CORRECT?

A) The two classes of risk are market risk and systematic risk.

B) Firm-specific risk can be reduced through diversification.

C) Market risk can be reduced through diversification.

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The other statements are false. Market risk cannot be reduced through diversification; market risk = systematic risk. The two classes of risk are unsystematic risk and systematic risk.

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Which of the following statements about risk is is NOT correct?

A) The market portfolio consists only of systematic risk.

B) Unsystematic risk is diversifiable risk.

C) Total risk = systematic risk - unsystematic risk.

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Total risk = systematic risk + unsystematic risk

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Which of the following statements about portfolio management is most accurate?

A) Combining the capital market line (CML) (risk-free rate and efficient frontier) with an investor's indifference curve map separates out the decision to invest from the decision of what to invest in.

B) The security market line (SML) measures systematic and unsystematic risk versus expected return; the CML measures total risk.

C) As an investor diversifies away the unsystematic portion of risk, the correlation between his portfolio return and that of the market approaches negative one.

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Combining the CML (risk-free rate and efficient frontier) with an investor’s indifference curve map separates out the decision to invest from what to invest in and is called the separation theorem. The investment selection process is thus simplified from stock picking to efficient portfolio construction through diversification.

The other statements are false. As an investor diversifies away the unsystematic portion of risk, the correlation between his portfolio return and that of the market approaches positive one. (Remember that the market portfolio has no unsystematic risk). The SML measures systematic risk, or beta risk.