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Questions and Answers
The major benefit of diversification is to:
The major benefit of diversification is to:
- Increase the expected return
- Reduce the portfolio's systematic risk (correct)
- Reduce the expected risk
- Remove negative risk assets from the portfolio
Stocks that have high financial rewards are generally accompanied by:
Stocks that have high financial rewards are generally accompanied by:
- All of the given choices
- Low dividend payments because of internally generated growth
- High dividend payments
- High risk (correct)
A measure that describes the risk of an investment project relative to other investments in general is the:
A measure that describes the risk of an investment project relative to other investments in general is the:
- Expected return
- Coefficient of variation
- Beta coefficient (correct)
- Standard deviation
A firm with a higher degree of operating leverage when compared to the industry average implies that the:
A firm with a higher degree of operating leverage when compared to the industry average implies that the:
The major benefit of diversification is to:
The major benefit of diversification is to:
Stocks that have high financial rewards are generally accompanied by:
Stocks that have high financial rewards are generally accompanied by:
A measure that describes the risk of an investment project relative to other investments in general is the:
A measure that describes the risk of an investment project relative to other investments in general is the:
A firm with a higher degree of operating leverage when compared to the industry average implies that the:
A firm with a higher degree of operating leverage when compared to the industry average implies that the:
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Study Notes
Financial Management
Diversification
- The major benefit of diversification is to reduce the portfolio's systematic risk.
Investment Risk and Return
- Stocks with high financial rewards are generally accompanied by high risk.
- High dividend payments are not necessarily a characteristic of high-reward stocks.
Investment Risk Measures
- The beta coefficient is a measure that describes the risk of an investment project relative to other investments in general.
- The coefficient of variation and standard deviation are alternative measures of risk.
- The expected return is a measure of investment performance, not risk.
Operating Leverage
- A firm with a higher degree of operating leverage has profits that are more sensitive to changes in sales volume.
- This implies that the firm's profits are more volatile.
- A higher degree of operating leverage is not necessarily indicative of a more profitable or less risky firm.
Financial Management
Diversification
- The major benefit of diversification is to reduce the portfolio's systematic risk.
Investment Risk and Return
- Stocks with high financial rewards are generally accompanied by high risk.
- High dividend payments are not necessarily a characteristic of high-reward stocks.
Investment Risk Measures
- The beta coefficient is a measure that describes the risk of an investment project relative to other investments in general.
- The coefficient of variation and standard deviation are alternative measures of risk.
- The expected return is a measure of investment performance, not risk.
Operating Leverage
- A firm with a higher degree of operating leverage has profits that are more sensitive to changes in sales volume.
- This implies that the firm's profits are more volatile.
- A higher degree of operating leverage is not necessarily indicative of a more profitable or less risky firm.
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