Tutorial 4 Questions - Tutorial 4#1 In broad terms why is some risk diversifiable Why are some risks nondiversifiable Does it follow that an investor

Tutorial 4 Questions - Tutorial 4#1 In broad terms why is...

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Tutorial 4 #1: In broad terms, why is some risk diversifiable? Why are some risks nondiversifiable? Does it follow that an investor can control the level of unsystematic risk in a portfolio, but not the level of systematic risk? #2: Indicate whether the following events might cause stocks in general to change price, and whether they might cause Big Widget Corp.’s stock to change price: a. The government announces that inflation unexpectedly jumped by 2 percent last month. b. Big Widget’s quarterly earnings report, just issued, generally fell in line with analysts’ expectations. c. The government reports that economic growth last year was at 3 percent, which was generally agreed with most economists’ forecasts. d. The directors of Big Widget die in a plane crash. e. Congress approves changes to the tax code that will increase the top marginal corporate tax rate. The legislation had been debated for the previous six months. #3: Stock Y has a beta of 1.3 and an expected return of 18.5 percent. Stock Z has a beta of 0.70 and an expected return of 12.1 percent.
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