F14

Question 1

what does portfolio risk depend on?

Answer 1

diversification
common risk
correlation

Question 2

correlation

Answer 2

quantifies strength of relationship between stocks
0=uncorrelated
1=move together, common risk
-1=opposite directions

Question 3

equally weighted portfolio

Answer 3

same amount invested in each stock

Question 4

what happens with volatility when number of stocks grow?

Answer 4

declines
almost all diversification can be achieved with n=30
21.17%

Question 5

correlation effects…?

Answer 5

volatility but not return

Question 6

long position

Answer 6

buying security with expectation that it will rise

Question 7

short position

Answer 7

expect stock to go down
sell stock you don’t own with obligation to buy back in future
(blankning)

Question 8

buying stocks on margin

Answer 8

using leverage

Question 9

CAPM assumptions

Answer 9

• investors can buy/sell securities at competitive market price and borrow at risk-free rate
• investors hold only efficient portfolios
• investors have homogenous expectations regarding volatility, return and correlation

Question 10

what does sharp ratio tell?

Answer 10

compares and shoes best return together with optimal risk

shoes if you should add asset or not