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Question 80  CAPM, risk, diversification

Diversification is achieved by investing in a large amount of stocks. What type of risk is reduced by diversification?



Question 81  risk, correlation, diversification

Stock A and B's returns have a correlation of 0.3. Which statement is NOT correct?



Question 236  diversification, correlation, risk

Diversification in a portfolio of two assets works best when the correlation between their returns is:



Question 241  Miller and Modigliani, leverage, payout policy, diversification, NPV

One of Miller and Modigliani's (M&M's) important insights is that a firm's managers should not try to achieve a particular level of leverage or interest tax shields under certain assumptions. So the firm's capital structure is irrelevant. This is because investors can make their own personal leverage and interest tax shields, so there's no need for managers to try to make corporate leverage and interest tax shields. This is true under the assumptions of equal tax rates, interest rates and debt availability for the person and the corporation, no transaction costs and symmetric information.

This principal of 'home-made' or 'do-it-yourself' leverage can also be applied to other topics. Read the following statements to decide which are true:

(I) Payout policy: a firm's managers should not try to achieve a particular pattern of equity payout.

(II) Agency costs: a firm's managers should not try to minimise agency costs.

(III) Diversification: a firm's managers should not try to diversify across industries.

(IV) Shareholder wealth: a firm's managers should not try to maximise shareholders' wealth.

Which of the above statement(s) are true?



Question 279  diversification

Do you think that the following statement is or ? “Buying a single company stock usually provides a safer return than a stock mutual fund.”


Question 798  idiom, diversification, market efficiency, sunk cost, no explanation

The following quotes are most closely related to which financial concept?

  • “Opportunity is missed by most people because it is dressed in overalls and looks like work” -Thomas Edison
  • “The only place where success comes before work is in the dictionary” -Vidal Sassoon
  • “The quickest way to double your money is to fold it in half and put it in your back pocket” -Will Rogers




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