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Finance 300 chap 11
Question | Answer |
---|---|
Cyclical companies | Move with the econmy |
Counter-cyclical companies | move against the economic gradient. |
Portfolio | collection of assets |
Portfolio standard deviation is ____ a weighted average of the standard deviation of the component securities' risk | Not(almost never) |
Total return | Expected return + Unexpected return |
Unexpected return | Systematic portion + Unsystematic portion |
systematic Risk | Factor that affect a large number of assets. (Non diversifiable risk) |
unsystematic risk | risk factors that affect a limited number of assets(asset-specific risk) |
unsystematic risk | risk that can be eliminated by combining assets into portfolios. |
Total Risk | Systematic risk + unsystematic risk |
Total risk is equal to systematic risk | only when portfolio is very well diversified(low unsystematic risk) |
the expected return on an assets depends____ on that asset's systematic or market risk | only |
Market equilibrium | All assets and portfolios must have the some reward to risk ration in equilibrium |
Security market line | the representation of market equilibrium |
diversification | the practice of investing in a variety of diverse assets as a means of reducing risk |
Portfolio diversification | eliminates unsystematic risk |
cost of capital | is the minimun required rate of return on a new investment that makes that investment attractive. |
Beta | measures systematic risk |