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