FN 11

True or false: Risk may cause expected return to differ from realized return.

True

True or false: The expected return of a portfolio is always a weighted average of the expected returns of the holdings within the portfolio.

True

True or false: The realized return could be significantly higher or lower than the expected rate.

True

The expected return of a portfolio is a simple ____ of the expected returns of the assets that comprise the portfolio.

weighted average

The most risk would be eliminated by combining securities with a correlation of _____.

-1

The correlation coefficient ranges from ______.

-1 to +1

The portfolio weights in a given portfolio must sum to _____ %.

100

True or false: Adding a high-variance asset class will always increase the volatility of your portfolio.

False

True or false: Adding more of a low risk asset to your portfolio will reduce the overall volatility of your portfolio.

False

True or false: Diversification is generally considered to be a detriment to the average investor.

False

True or false: The portfolio variance is a weighted average of the variances of the assets in the portfolio.

False

True or false: The variance of a portfolio's expected return is generally a weighted average of the variances of the assets in the portfolio.

False

The father of modern portfolio theory is _______.

Markowitz

All portfolios that plot _______ the minimum variance portfolio are efficient.

above

The extent to which the returns on two assets move together is the _________ .

correlation

A portfolio that offers the highest return for a given level of risk is said to be an _______ portfolio.

efficient

The average return on a risky asset anticipated to occur in the future is called the _____.

expected return

The expected risk premium is calculated as:

expected return minus the risk-free rate

As you add stocks to a portfolio, the standard deviation of the portfolio's return _____

falls

The portfolio variance is _____ a weighted average of the variances of the assets in the portfolio. Multiple choice question.

not generally

The collection of possible risk-return combinations available from portfolios of individual assets is called the investment ________ set.

opportunity

The percentages of the total portfolio's value that are invested in each portfolio asset are called the _____.

portfolio weights

The percentages of the total portfolio's value that are invested in each portfolio asset are called the _____. Multiple choice question.

portfolio weights

The difference between the expected return on a risky investment and the certain return on a risk-free investment is the expected risk ________

premium

As time horizon increases, the standard deviation of the _________ (wealth/return) tends toward zero, but the standard deviation of the ________ (wealth/return) does not.

return, wealth

The time diversification fallacy is the incorrect belief that time diversifies _________.

wealth