Please PRINT your name FIN 351 Quiz 9 Capital Budgeting Please write down your c
ID: 2798869 • Letter: P
Question
Please PRINT your name FIN 351 Quiz 9 Capital Budgeting Please write down your choice in the blank before the question. Two points each and 10 points in total. 1. A news flash just appeared that caused about a dozen stocks to suddenly drop in value by 10 percent. What type of risk does this news flash best represent? a. Portfolio risk. b Market risk c Unsystematic risk. d. Total risk 2. The principle of diversification tells us that: a. Concentrating an investment in two or three large stocks will eliminate all of the b. C. d. unsystematic risk. Spreading an investment across five diverse companies will not lower the total risk. Spreading an investment across many diverse assets will eliminate all of the systematic risk. Spreading an investment across many diverse assets will eliminate some of the total risk. 3.- Which of the following statements is CORRECT? a. A stock with a beta equal to -1.0 has zero market risk b. A stock with a beta of 1 is a stock of average market risk. c If investors become less averse to risk, the slope of the Security Market Line will increase. d. A stock's beta measures its diversifiable risk relative to the diversifiable risks of other firms Which of the following statements is NOT CORRECT? a Investors expect a higher return by taking greater risk; here risk means market risk. b. Any change in the beta is likely to affect the required rate of return on a stock, which implies that a change in beta will likely have an impact on the stock's price, other things held constant c The Capital Asset Pricing Model (CAPM)/SML dictates a positive relationship between risk and return. d. The slope and intercept of this Security Market Line can be influenced by a manager's actions. 5.--which of the following statements about risk is CORRECT? Investors are risk averse, which means they would prefer bonds to stocks because the former is less risky than the latter. a.Explanation / Answer
1)
Market risks same for particular all companies. If many companies affected by a flash news, it can be said that all are equally affected. It can be categorized as market risk.
Hence, correct option is (B) Market risk.