Exam 16: Why Diversify

Failure to diversify

Inexplicable returns in the CAPM are measured by alpha.

The efficient frontier contains portfolios that

Beta is derived from using expected stock returns relative to market returns.

The equation for the variance of a five-security portfolio has_____ variance terms.

Of total portfolio risk, about 75% can be diversified away.

The capital asset pricing model measures the relationship between a security's expected return and its beta.

Investors in capital markets are assumed to be well diversified.

The returns on most common stock are positively correlated.

The point where a line from the risk free rate is tangent to the efficient frontier for risky securities is the

The market portfolio is a point on the efficient frontier.

Only the end points of the efficient frontier are dominated portfolios.