Chapter 11

Question 1

Portfolio

Answer 1

group of assets such as stocks and bonds held by an investor

Question 2

Portfolio Weight

Answer 2

Percentage of a portfolio’s total value in a particular asset

Question 3

Expected Return

Answer 3

two types of risks with individual assets are systematic and unsystematic risk
1) the first risk has to do with risk of all assets in a marketplace
2) the second with a small size

Question 4

Expected and Unexpected Returns

Answer 4

return on any stock traded publicly is made up of two factors
1) normal, or expected return from the stock that can be predicted, sometimes with slight variances
2) the impact that news or events that occur during the current year, and their impact on the stock’s return

Question 5

Diversification

Answer 5

spreading an investment across a number of assets to eliminate some of the risk

Question 6

Systematic Risk Principle

Answer 6

the expected return on a risky asset depends only on that asset’s systematic risk

Question 7

Beta Coefficient

Answer 7

amount of systematic risk present in a particular risky asset relative to the average risk asset. The larger the beta, the larger the systematic risk
- this coefficient helps us to determine systematic risk

Question 8

Security Market Line

Answer 8

positively sloped straight line depicting the relationship between expected return and beta

Question 9

Market Risk Premium

Answer 9

slope of SML, the difference between the expected return on a market portfolio