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2 Jan 2018

What types of companies would you expect to have a high beta stocks? What types are more likely to have low beta stocks? Why?

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Nestor Rutherford
Nestor RutherfordLv2
2 Jan 2018
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Related questions

Can we have high-beta stocks that might be attractive from a risk perspective and low-beta stocks that are unattractive? Explain.

In broad terms, why is some risk diversifiable? Why are some risks non diversifiable? Does it follow that an investor can control the level of unsystematic risk in a portfolio, but not the level of systematic risk?

Please respond with a paragraph to each question

Stock A has a beta of 0.80, stock B has a beta of 1.40, and stock C has a beta of -0.30.

Rank these stock from the riskiest to the least risky. Explain your reasoning and back up your explanation with research.

If the return on the market portfolio increases by 12%, what change in the return for each of the stocks would you expect? Explain your answer.

If the return on the market portfolio declines by 5%, what change in the return for each of the stocks would you expect? Explain your answer.

If you felt the stock market was about to experience a significant decline, which stock would you be most likely to add to your portfolio? Why?

If you anticipated a major stock market rally, which stock would you be most likely to add to your portfolio? Why?

Q2: You own a portfolio that has $700 invested in Stock A and $2,400 invested in Stock B. If the expected returns on these stocks are 11 percent and 18 percent, respectively. 
 
Required:  
 
a) What is the expected return on the portfolio?
b) Why is some risk diversifiable? Why are some risks non-diversifiable? Does it follow that an investor can control the level of unsystematic risk in a portfolio, but not the level of systematic risk? 
c) Can the risk of a portfolio be reduced to zero by increasing the number of stocks in the portfolio? Explain.
d) If investors’ aversion to risk increased, would the risk premium on a high-beta stock increase by more or less than that on a low-beta stock? Explain.

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