Chapter 13 - Portfolio Theory

Question 1

total return

Answer 1

expected + unexpected return

unexpected usually come from announcements

Question 2

total surprise

Answer 2

systematic + unsystematic risk that is baked into return

Question 3

increasing n

Answer 3

reduces STANDARD DEVIATION

Question 4

Systematic risk principle

Answer 4

reward for bearing risk ONLY depends on Beta / systematic risk

Question 5

Beta

Answer 5

measure of risk of specific asset relative to avg assset

Question 6

Relationship between price and return

Answer 6

Move in opposite directions

Question 7

Slope of SML

Answer 7

basically risk premium because it shows the reward for bearing an additional unit of risk

Question 8

3 Influencers of CAPM

Answer 8

1. time value of money
2. reward for given Beta
3. amount of systematic risk