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Finance 300 chap 11

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
Created by: Jylkasonga