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Interest rates, inflation and economic growth are economic factors that are examples of ______________________.

market risk

This is the portion of total risk that is attributable to overall economic factors.

market risk

This is the concept and procedure for combining securities into a portfolio to minimize risk.

modern portfolio theory

This is defined as a combination of investment assets held by an investor.

portfolio

The efficient frontier portfolios are __________________________.

portfolios that dominate all others

This is a measure of risk to reward earned by an investment over a specific period of time.

coefficient of variation

We commonly measure the risk-return relationship using which of the following?

coefficient of variation

Which of the following statements is correct regarding total risk?

conglomerates will have less total risk than a firm that has one line of business

This is a measurement of the co-movement between two variables that ranges between -1 and +1.

correlation

Which of the following makes this a true statement: The shape of the efficient frontier implies that

diminishing returns apply to risk-taking in the investment world.

This is defined as the portion of total risk that is attributable to firm or industry factors and can be reduced through diversification.

firm specific risk

This is a measure summarizing the overall past performance of an investment

average return

Jane Adams invests all her money in the stock of one firm. Which of the following must be true?

Her return will have more volatility than the return in the overall stock market.

This is the term for portfolios with the highest return possible for each risk level.

efficient portfolios

To find the percentage return of an investment,

. divide the dollar return by the investment's value at the beginning of the period.

Which of the following is correct regarding the total risk of a company?

A company can change its risk level over time.

Which is correct?

A dominant portfolio has the best risk-return relationship as compared to other portfolios.

Which of the following statements is correct?

A single stock has a lot of diversifiable risk.

Which of the following is incorrect?

It is possible to combine assets that all move in the exact same fashion over time and gain the benefits of diversification.

Which of the following is correct regarding the coefficient of variation?

It measures the amount of risk taken for each one percent of return achieved.

This index tracks 500 companies which allows for a great deal of diversification.

S&P 500

Jenna receives an investment newsletter that recommends that she invest in a stock that has doubled the return of the S&P 500 in the last two months. It also claims that this stock is a "safe bet" for the future. Which of the following statements is correct regarding this information?

The investment newsletter contains contrary information since the stock must be a high risk and therefore cannot also be a "safe bet."

Which statement is true?

The larger the standard deviation, the higher the total risk.

Which of these statements is true?

When people purchase a stock, they do not know what their return is going to be - either short term or in the long run.

This includes any capital gain (or loss) that occurred as well as any income that you received from a specific investment.

dollar return

Which of the following statements is correct? A. Uncorrelated assets have a correlation of -1.0.B. Most common stocks are positively correlated with each other because they are impacted by the economic factors.C. We can typically add many stocks together to fully eliminate the market risk in a portfolio.D. None of these statements are correct.

most common stocks are positively correlated with each other because they are impacted by the economic factors

This is another term for market risk.

nondiversifiable risk

Which of the following statements is correct regarding total risk?

none

Which of the following statements is correct with regards to diversification?

none

Which of the following statements is correct? A. For a few firms in completely different industries, it is possible to have a correlation that approaches -2.0.B. A correlation of -1.0 means that the two firms are uncorrelated or that they have no relationship.C. Most common stocks have low correlation with each other since they operate in different industries.D. None of these statements are correct.

none

Which of the following statements is correct? A. The dollar return is a more useful measure to compare performance because it more accurately reflects the change in wealth of the investor.B. A dominant portfolio is one that has the highest risk and highest return within a set of portfolios.C. By adding stocks to your portfolio, it is possible to effectively eliminate nearly all of the market risk.D. None of these statements are correct.

none

This is the investor's combination of securities that achieves the highest expected return for a given risk level.

optimal portfolio

This is the dollar return characterized as a percentage of money invested.

percent return

This is defined as the volatility of an investment, which includes firm specific risk as well as market risk.

total risk