Fin 313 Chapter 11

__________ risk is reduced as more securities are added to the portfolio.

1. company-specific 2. diversifiable 3. unsystematic

The systematic risk principle argues that the market does not reward risks ______.

1. that are diversifiable 2. that are borne unnecessarily

Which of the following are examples of information that may impact the risky return of a stock?

1. the outcome of an application currently pending with the FDA 2. the Fed's decision on interest rates at their meeting next week

The true risk of any investment comes from ________.

1. unanticipated events 2. surprises

Which of the following statements is (are) true about variance?

1. variance is a measure of the squared deviations of a security's return from its expected return. 2. standard deviation is the square root of variance

True or False: Expected return and inflation are the two components of risky return in the total return equation.

False

True or False: Portfolio weights can be defined as the dollars invested in each asset.

False

True or False: The expected return of a portfolio is a combination of the weights of each asset in a portfolio.

False

True or False: The standard deviation is the variance squared.

False

True or False: The surprise part of any announcement is the information the market uses to form the expectation of the return on the stock.

False

What is systematic risk?

It is a risk that pertains to a large number of assets.

What is an uncertain or risky return?

It is the portion of return that depends on information that is currently unknown.

What is the definition of expected return?

It is the return that an investor expects to earn on a risky asset in the future.

True or False: The expected return is the return that an investor expects to earn on a risky asset in the future.

True

If you wish to create a portfolio of stocks, what is the required minimum number of stocks?

You must invest in stocks of more than one corporation

The _______ return on a portfolio is a combination of the expected returns on the assets in the portfolio.

expected

Systematic risk is also called ________ risk.

market

The ________ is the news that influences the unanticipated return on the stock.

surprise

The true risk of any investment comes from:

surprises

A portfolio can be described by its portfolio weights which are defined as _____________________.

the percentage of dollars invested in each asset

The standard deviation is ________.

the square root of the variance

The standard deviation of a portfolio is

the square root of the variance

True or False: It is possible for the unsystematic risk of a portfolio to be reduced almost to zero.

true