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acfi 702 chapter 6
Terms in this set (18)
Risk that can be eliminated through diversification is called ______ risk.
unique, firm-specific, diversifiable... all of the above
The _______ decision should take precedence over the _____ decision.
asset allocation; stock selection
Asset A has an expected return of 20% and a standard deviation of 25%. The risk-free rate is 10%. What is the reward-to-variability ratio?
Diversification is most effective when security returns are _________.
Beta is a measure of security responsiveness to _________.
The risk that can be diversified away is __________.
Approximately how many securities does it take to diversify almost all of the unique risk from a portfolio?
Market risk is also called __________ and _________.
systematic risk; nondiversifiable risk
Firm-specific risk is also called __________ and __________.
unique risk; diversifiable risk
Harry Markowitz is best known for his Nobel Prize-winning work on _____________.
techniques used to identify efficient portfolios of risky assets
Suppose that a stock portfolio and a bond portfolio have a zero correlation. This means that ______.
the returns on the stock and bond portfolios tend to vary independently of each other
You put half of your money in a stock portfolio that has an expected return of 14% and a standard deviation of 24%. You put the rest of your money in a risky bond portfolio that has an expected return of 6% and a standard deviation of 12%. The stock and bond portfolios have a correlation of .55. The standard deviation of the resulting portfolio will be ________________.
more than 12% but less than 18%
A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 35%, while stock B has a standard deviation of return of 15%. The correlation coefficient between the returns on A and B is .45. Stock A comprises 40% of the portfolio, while stock B comprises 60% of the portfolio. The standard deviation of the return on this portfolio is _________.
Which of the following correlation coefficients will produce the least diversification benefit?
Which of the following correlation coefficients will produce the most diversification benefits?
What is the most likely correlation coefficient between a stock-index mutual fund and the S&P 500?
Investing in two assets with a correlation coefficient of -.5 will reduce what kind of risk?
Investing in two assets with a correlation coefficient of 1 will reduce which kind of risk?
A. market risk
B. unique risk
C. unsystematic risk
none of these options (With a correlation of 1, no risk will be reduced.
THIS SET IS OFTEN IN FOLDERS WITH...
Ch 6 T2
Investment Management Chapter 1
Investment Management Chapter 2
Investment Management Chapter 3
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