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Key Concepts:
Terms in this set (11)
Risk that can be eliminated through diversification is called ______ risk.
all of these options
The _______ decision should take precedence over the _____ decision
asset allocation; stock selection
Adding additional risky assets to the investment opportunity set or portfolio will generally move the efficient frontier curve _____ and to the ______.
up; left
The expected rate of return of a portfolio of risky securities is _________.
the weighted sum of the securities' expected returns based on probability factors
Beta is a measure of security responsiveness to _________.
market risk
The risk that can be diversified away by adding more securities is __________.
firm-specific risk
Market risk is also called __________ and _________.
systematic risk; nondiversifiable risk
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
On a standard expected return versus standard deviation graph, investors will prefer portfolios that lie to the _____________ the current investment opportunity set.
left and above
The standard deviation of return on investment A is .10, while the standard deviation of return on investment B is .05. If the covariance of returns on A and B is .0030, the correlation coefficient between the returns on A and B is _________.
.60
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 _________.
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