Advertisement Upgrade to remove ads

The term excess-return refers to ______.

the difference between the rate of return earned on a particular security and the rate of return earned on other securities of equivalent risk

Some diversification benefits can be achieved by combining securities in a portfolio as long as the correlation between the securities is ________.
A. 1
B. less than 1
C. between 0 and 1
D. less than or equal to 0

B. less than 1

If an investor does not diversify their portfolio and instead puts all of their money in one stock, the appropriate measure of security risk for that investor is the _____.

stock's standard deviation

If you want to know the portfolio standard deviation for a three stock portfolio you will have to

calculate three covariances.

Which of the following correlations coefficients will produce the least diversification benefit?
A. -0.6
B. -0.3
C. 0
D. 0.8

D. 0.8

You are considering adding a new security to your portfolio. In order to decide whether you should add the security you need to know the security's _______.
I. expected return
II. standard deviation
III. correlation with your portfolio
Choose the correct roman numerals.

I, II, and III are all correct

risk that can be eliminated through diversification is called _______ risk.
A. unique
B. firm-specific
C. diversifiable
D. all of the above

D. all of the above

An investor's degree of risk aversion will determine his/her ___________.

optimal mix of the risk-free asset and risky asset

Diversification is most effective when security returns are ______.

negatively correlated

Beta is a measure of security responsiveness to _______.

market risk

Consider an investment opportunity set formed with 2 securities that are perfectly negatively correlated. The global minimum variance portfolio has a standard deviation that is always ___________.

zero

Harry Markowitz is best known for his Nobel prize winning work on ____.

techniques used to identify efficient portfolios of risky assets

Please allow access to your computer’s microphone to use Voice Recording.

Having trouble? Click here for help.

We can’t access your microphone!

Click the icon above to update your browser permissions above and try again

Example:

Reload the page to try again!

Reload

Press Cmd-0 to reset your zoom

Press Ctrl-0 to reset your zoom

It looks like your browser might be zoomed in or out. Your browser needs to be zoomed to a normal size to record audio.

Please upgrade Flash or install Chrome
to use Voice Recording.

For more help, see our troubleshooting page.

Your microphone is muted

For help fixing this issue, see this FAQ.

Star this term

You can study starred terms together

NEW! Voice Recording

Create Set