Ch. 11

Question 0

Dow Jones Industrial Average

Answer 0

Index of the investment performance of a portfolio of 30 “blue chip” stocks

Question 1

Market index

Answer 1

Measure of the investment performance of the overall market

Question 2

Standard & poor composite index

Answer 2

Index of the investment performance of a portfolio of 500 large stocks. Also called S&P 500

Question 3

Maturity premium

Answer 3

Extra average return from investing in long versus short-term treasury securities

Question 4

Risk premium

Answer 4

Expected return in excess of risk free return as compensation for risk

Question 5

Variance

Answer 5

Average value of squared deviations from mean. A measure of volatility

Question 6

Standard deviations

Answer 6

Square root of variance. Another measure of volatility.

Question 7

Diversification

Answer 7

Strategy designed to reduce risk by spreading the portfolio across many investments

Question 8

Specific risk

Answer 8

Risk factors affecting only that firm. Also called diversifiable risk.

Question 9

Market risk

Answer 9

Economy wide (macroeconomic) sources of risk that affect the overall stock market. Also called systematic risk.