Exam 6: Efficient Diversification

You are recalculating the risk of ACE stock in relation to the market index and you find the ratio of the systematic variance to the total variance has risen.You must also find that the ____________.

The _______ decision should take precedence over the _____ decision.

A stock has a correlation with the market of 0.45.The standard deviation of the market is 21% and the standard deviation of the stock is 35%.What is the stock's beta?

An investor can design a risky portfolio based on two stocks,A and B. The standard deviation of return on stock A is 24% while the standard deviation on stock B is 14%. The correlation coefficient between the return on A and B is 0.35. The expected return on stock A is 25% while on stock B it is 11%. The proportion of the minimum variance portfolio that would be invested in stock B is approximately _________.

You put half of your money in a stock portfolio that has an expected return of 14% and a standard deviation of 24%.You put the rest of you money in a risky bond portfolio that has an expected return of 6% and a standard deviation of 12%.The stock and bond portfolio have a correlation 0.55.The standard deviation of the resulting portfolio will be ________________.

Based on the outcomes in the table below choose which of the statements is/are correct: I.The covariance of Security A and Security B is zero II.The correlation coefficient between Security A and C is negative III.The correlation coefficient between Security B and C is positive

The ________ is equal to the square root of the systematic variance divided by the total variance.

Harry Markowitz is best known for his Nobel prize winning work on _____________.

The market value weighted average beta of firms included in the market index will always be _____________.

Which risk can be diversified away as additional securities are added to a portfolio? I.Total risk II.Systematic risk III.Firm specific risk

As you lengthen the time horizon of your investment period and decide to invest for multiple years you will find that ________. I.the average risk per year may be smaller over longer investment horizons II.the overall risk of your investment will compound over time III.your overall risk on the investment will fall

An investor can design a risky portfolio based on two stocks,A and B. The standard deviation of return on stock A is 20% while the standard deviation on stock B is 15%. The correlation coefficient between the return on A and B is 0%. The standard deviation of return on the minimum variance portfolio is _________.

Adding additional risky assets to the investment opportunity set will generally move the efficient frontier _____ and to the ______.

Which of the following is a correct expression concerning the formula for the standard deviation of returns of a two asset portfolio where the correlation coefficient is positive?

Which of the following correlation coefficients will produce the most diversification benefits?

Consider two perfectly negatively correlated risky securities,A and B. Security A has an expected rate of return of 16% and a standard deviation of return of 20%. B has an expected rate of return of 10% and a standard deviation of return of 30%. The weight of security B in the minimum variance portfolio is _________.

The figures below show plots of monthly excess returns for two stocks plotted against excess returns for a market index. -Which stock is riskier to a non-diversified investor who puts all his money in only one of these stocks?

Market risk is also called __________ and _________.

Suppose that a stock portfolio and a bond portfolio have a zero correlation.This means that ______.

Which of the following statistics cannot be negative?