FIN-315 Ch. 8 Risk and Return
Coefficient of variation
A ________ is a measure of relative dispersion used in comparing the risk of assets with differing expected returns
Standard deviation
A ________ measures the dispersion around the expected value
has the same response as the market portfolio
A beta coefficient of +1 represents an asset that
has the same response as the market portfolio but in opposite direction
A beta coefficient of -1 represents an asset that
is unrelated to the market portfolio
A beta coefficient of 0 represents an asset that
Risk
A measure of the uncertainty surrounding the return than an investment will earn
Efficient Portfolio
A portfolio that maximizes return for a given level of risk
Efficient
A(n) ________ portfolio maximizes return for a given level of risk, or minimizes risk for a given level of return
collection of assets with the aim of maximizing the return
An efficient portfolio is defined as
maximizes return for a given level of risk
An efficient portfolio is one that
cause an increase in the beta and would increase the required return
An increase in nondiversifiable risk would
investors' required rate of return will increase
As risk aversion increases
Risk-neutral
If a manager prefers a higher return investment regardless of its risk, then he is following a
Risk-seeking
If a manager prefers investments with greater risk even if they have lower expected returns, then he is following a ________ strategy
Risk-averse
If a manager requires greater return when risk increases, then he is said to be
Parallel shift upward in the security market line
In the capital asset pricing model, an increase in inflationary exceptions will be reflected by a?
Market Risk
In the capital asset pricing model, the beta coefficient is a measure of
Nondiversifiable risk
In the capital asset pricing model, the beta coefficient is a measure of
the slope of the security market line
In the capital asset pricing model, the general risk preferences of investors in the marketplace are reflected by
Beta Coefficient
Is a relative measure of nondiversifiable risk
Systematic risk
Relevant portion of an asset's risk attributable to market factors that affect all firms is called
an increase in return, for a given increase in risk
Risk aversion is the behavior exhibited by managers who require
Nondiversifiable risk
Risk that affects all firms is called
U.S. Treasury bills (T-bills)
Short-term IOUs issued by the U.S. Treasury, considered the risk-free asset
Diversifiable risk
Strikes, lawsuits, regulatory actions, or the loss of a key account are all examples of
Nondiversifiable risk
Systematic risk is also referred to as
risk-free rate and risk premium
The CAPM can be divided into
Lower, Lower
The ________ the coefficient of variation, the ________ the risk.
Capital Asset Pricing Model (CAPM)
The basic theory that links risk and return for all assets
is equal to 0
The beta associated with a risk-free asset is
is the weighted average of the betas of the individual assets in the portfolio
The beta of a portfolio
minimize risk for a given level of return
The goal of an efficient portfolio is to
the more responsive it is to changing market returns
The higher an asset's beta
Unsystematic risk
The portion of an asset's risk that is attributable to firm-specific, random causes is called
Risk-Free Rate of Return
The required return on a risk-free asset, typically a 3-month U.S. Treasury bill
dividing the asset's cash distributions during the period, plus change in value, by its beginning-of period investment value
The total rate of return on an investment over a given period of time is calculated by
can be eliminated through diversification
Unsystematic risk
Nondiversifiable risk
War, inflation, and the condition of the foreign markets are all examples of
Changes in risk aversion, and therefore shifts in the SML, result from changing preferences of investors.
Which of the following is true of risk aversion?
Diversifiable
risk represents the portion of an asset's risk that can be eliminated by combining assets with less than perfect positive correlation
