Why do most investors prefer to hold a diversified portfolio of securities as opposed to placing all of their wealth in a single asset?

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Assignment Questions

Q1:  Why do most investors prefer to hold a diversified portfolio of securities as opposed to placing all of their wealth in a single asset?

1. Why do most investors hold diversified portfolios?

Investors hold diversified portfolios in order to reduce risk, to lower the variance of the

Portfolio. Variance is considered a measure of risk of the portfolio and is one of the many

financial tools used. A diversified portfolio should accomplish this because the returns for the

alternative  assets  should  not   be  correlated   so  the   variance   of   the   total  portfolio   will  be

generally reduced.

2. W
3. Why do most investors hold diversified portfolios?

Investors hold diversified portfolios in order to reduce risk, to lower the variance of the

Portfolio. Variance is considered a measure of risk of the portfolio and is one of the many

financial tools used. A diversified portfolio should accomplish this because the returns for the

alternative  assets  should  not   be  correlated   so  the   variance   of   the   total  portfolio   will  be

generally reduced.

Q2: Given the following financial data, compute:

1. Return on equity.
2. Quick ratio.
3. Long-term debt to equity.
4. Fixed-charge coverage.

Q3: Explain the benefits derived from investing in deep discount bonds.

Q4: Explain how to manage bond portfolios and what are the portfolio management strategies.