Asked by Demia Kelly on Jul 06, 2024
Verified
Which of the following would have the lowest amount of systematic risk?
A) A portfolio of the common stocks of 100 different companies.
B) The market portfolio.
C) A portfolio half invested in the market portfolio and half invested in Treasury bills.
D) A portfolio half invested in the market portfolio and half invested in stocks with betas = 1. 50.
E) A portfolio made up entirely of Treasury bills.
Systematic Risk
The danger that affects all investments within an entire market or a specific sector, commonly referred to as market risk or non-diversifiable risk.
Treasury Bills
Short-term government securities issued at a discount from the par value and pay no interest.
Market Portfolio
A theoretical portfolio that contains every asset in the market, weighted by market capitalization.
- Understand and differentiate between risks that are non-diversifiable (systematic) and those that are diversifiable (unsystematic).
- Acquire knowledge on the principle of diversification and its role in reducing portfolio risk.
Verified Answer
CG
Chloe GreinJul 09, 2024
Final Answer :
E
Explanation :
Treasury bills are considered to have the lowest amount of systematic risk because they are backed by the full faith and credit of the U.S. government, making them virtually risk-free from market fluctuations.
Learning Objectives
- Understand and differentiate between risks that are non-diversifiable (systematic) and those that are diversifiable (unsystematic).
- Acquire knowledge on the principle of diversification and its role in reducing portfolio risk.