Financial Management Individual Work Week 1 - Coursework Example

Thus, Repo Mens returns are expected to move counter to the economy (Brigham & Ehrhardt, 2013). The risk of 2–stock portfolio is 3.3% while the stand-alone risk of Altas Inds. is 18.8% and Repo men is 13.4%. This is because of diversification of stock , which implies that most of the risk contained in the stock was unique to such companies. Portfolio effect should affect the way investors think of individual stock because the risk of individual stocks contain both market and diversifiable risk.

In a well-diversified portfolio, there is elimination of diversifiable risks leading to risk reduction of the overall portfolio (Hampton, 2011). (2.) If you decided to hold a 1-stock portfolio and consequently were exposed to more risk than diversified investors, could you expect to be compensated for all of your risk; that is, could you earn a risk premium on that part of your risk that you could have eliminated by diversifying? Answer: See Ch 02 Mini Case Show Beta is the market risk. Beta of more than 1 such as that of Alta has higher returns.

Repo Men has the lowest beta, which is negative, thus the lower returns than T-bill that are risk free and has zero beta. T-bill has no risk and thus has a beta of zero (Hampton,