Finance Chapter 12 and 13

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Why is risk eliminated when we combine assets into a large portfolio?

Assets are not perfectly correlated.

Of the options listed below, which is the best measure of systematic risk?

Beta

Assume all stock prices fairly reflect all of the available information on those stocks. Which one of the following terms best defines the stock market under these conditions?

Efficient capital market

You are aware that your neighbor, Paul, trades stocks based on confidential information he overhears at his workplace. This information is not available to the general public. Paul often comments on the huge profits he earns on these trades. Paul's trading is an example of a violation of _______ form efficiency.

Strong

In a well diversified portfolio, the type of risk that will not be eliminated is:

Systematic risk

Which one of the following is the most likely reason why a stock price might not react at all on the day that new information related to the stock's issuer is released? Assume the market is semistrong form efficient.

The information was expected.

For an individual stock, ________ measures total risk, and ________ measures systematic risk.

standard deviation; beta

Over the long run, the choice that will drive an investor's return is:

the category of asset that the investor chooses (stocks vs bonds, e.g.).


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