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12 terms

Investments Q4

STUDY
PLAY
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