Exam 2 - Review

Question 1

What’s the definition of risk

Answer 1

Likely to have a predication error with a positive probability. What’s the average prediction error

Question 2

Remember correlation

Answer 2

-

Question 3

When its negative correlated

Answer 3

Stock a goes up

Stock a goes down

Question 4

When its positive correlated

Answer 4

They both go up

Question 5

When it has 0 for correlation

Answer 5

It’s not correlated whatsoever

Rand om

Question 6

When we diversity what does it mean

Answer 6

It’s the weighted average

Question 7

Under what situation portfolio risk is weighted average?

Answer 7

When the correlation is 1

Question 8

If we have 1 as the correlation coffecient we dont have what

Answer 8

Diversification effect

Question 9

Diversification

Answer 9

Risk reduction

Question 10

Diversification

Answer 10

Less than weighted average

Question 11

100% diversification is completed by

Answer 11

-1 correlation coefficient

Question 12

Empirical study shows its

Answer 12

Positive correlated

Question 13

When yo diversify the ______ ______ goes _______

Answer 13

Standard deviation; down

Question 14

All inventors should want a portfolio on the ____ ___

Answer 14

Efficient frontier

Question 15

You will be compensated on the _____ risk

Answer 15

Systematic risk (non diversified )

Question 16

Market beta is

Answer 16

1

Question 17

Market porfolio std changes?

Answer 17

Yes

Question 18

Beta of risk free asset =

Answer 18

0