CPCU 540 Ch. 9

Question 1

A measure of dispersion; a measure of the deviation of each variable in a data set form the mean of the data set

Answer 1

Variance

Question 2

A measure of dispersion between the value in a distribution and the expected value (or mean) of that distribution, calculated by taking the square root of the variance

Answer 2

Standard deviation

Question 3

A measure of dispersion calculated by dividing a distribution’s standard by its mean

Answer 3

Coefficient of variation

Question 4

A threshold value such that the probability of loss on the portfolio over the given time horizon exceeds the value, assuming the normal markets and no trading in the portfolio

Answer 4

Value at risk

Question 5

A measure of an asset’s volatility relative to that of the overall market for that type of asset

Answer 5

Beta

Question 6

The tendency for the potential return to increase as risk increases

Answer 6

Risk-return trade-off

Question 7

Risk that affects a specific company or a small group of companies

Answer 7

Company-specific risk (unsystematic risk)

Question 8

A risk control technique that spreads loss exposures over numerous projects, products, markets, or regions

Answer 8

Diversification

Question 9

The collection of securities portfolio combinations that generate the highest expected return for a given level of risk or that have the lowest risk for a given expected return

Answer 9

Efficient frontier

Question 10

A measure of a security’s weighted average life

Answer 10

Duration

Question 11

The process of matching investment duration and liability duration

Answer 11

Portfolio immunization (asset-liability marching)