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Flirting With Risk
Essay specific features
Written by:
John H
Date added:
October 9, 2014
Level:
University
Grade:
B
No of pages / words:
5 / 1212
Was viewed:
3401 times
Rating of current essay:
Essay content:
In order to get higher returns one needs to invest in riskier assets. In other words, risk is the probability of negative outcome and return is the compensation for this risk.
2. Mary has no idea what beta means and how it is related to the required return of the stocks. Explain how you would help her understand these topics...
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Stocks with betas greater than 1, show a more intense version of the market behavior. Stocks with betas between 0 and 1 move in the same direction with the market. Since the market is the portfolio of all the stocks, the average stock has a beta of 1.
3. How should Bill demonstrate the meaning and advantages of diversification to Mary?
Comparing expected returns from non-diversified investments with the diversified investments could be a good way of demonstrating the meaning and advantages of diversification...
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