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11 Dec 2019

A stock's beta is a measure of its A. unsystematic risk. B. diversifiable risk. C. company-unique risk. D. systematic risk.

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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?

Which of the following is the only risk that is relevant to a rational, diversified investor?

Unsystematic risk

Market risk

Diversifiable risk

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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