C214: FINANCIAL MANAGEMENT: 8.1 Risk and the Capital Asset Pricing Model (CAPM) Introduction 8.2 Diversification through Portfolios

8.1 Risk and the Capital Asset Pricing Model
(CAPM) Introduction

8.2 Diversification through Portfolios
Assessment Section 1
1
1/1
Diversification allows investors to maximize returns by keeping much of their portfolio in a
single asset.

 True
 Correct


False

Diversification spreads one’s wealth across many assets to offset the possibility that a large
negative return on one asset will destroy a large portion of an investor’s wealth.

2
1/1
Proper diversification should reduce the riskiness associated with a portfolio.

 Correct


True

 False

Diversification can reduce the risk by spreading investments across various assets,
decreasing exposure to any single risk.

3
1/1
A well-diversified portfolio should have a lower standard deviation of expected returns than
an undiversified portfolio.

 Correct


True

,  False

A well-diversified portfolio typically has a lower standard deviation, indicating less volatility
and risk.

4
1/1
A portfolio of Microsoft Co. and Apple Computers is better diversified than a portfolio made
up of Microsoft Co. and John Deere Tractors.

 True
 Correct


False

Diversification is most effective when dissimilar stocks are added to the portfolio.


8.3 Understanding Beta and Using the CAPM
Assessment Section 1
1
1/1
According to the CAPM, all unsystematic risk can be diversified away.

 Correct


True

 False

CAPM posits that through diversification, unsystematic risk can be eliminated, leaving only
systematic risk.

2
1/1
According to the CAPM, some systematic risk can be diversified away.

 True
 Correct


False