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1. Jane holds a large diversified portfolio of 100 randomly selected stocks and the portfolio’s beta = 1.2. Each of the individual stocks in her portfolio has a standard deviation of 20 percent. Jack has the same amount of money invested in a single stock with a beta equal to 1.6 and a standard deviation of 20 percent. Which of the following statements is most correct?

a) Jane’s portfolio has a larger amount of company-specific risk since she is holding more stocks in her portfolio.

b) Jane has a higher required rate of return, since she is more diversified.

c) Jane’s portfolio has less market risk since it has a lower beta.

d) Statements b and c are correct.

e) None of the statements above is correct.

2. How would you hedge these risks if you were an investment bank?

Market Risk

Interest Rate Risk

Liquidlity Risk

Credit Risk

Operational Risk

Currency Risk

Geopolitical Risk

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92750569

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