PORTFOLIO RISK

Question 1

PORTFOLIO RISK

Answer 1

Formula: Square of [Asset A Weight(sq)X Asset A Std Dev(sq) + Asset B Weight (sq) X Asset B Std Dev (sq) + 2 X Asset A weight X Asset B Weight X Covariance formula

Question 2

NONDIVERSIFIABLE RISKS

Answer 2

P R I M E
Purchase Power risk
Reinvestment rate risk
Interest Rate Risk
Market Risk
Exchange Rate Risk

Question 3

DIVERSIFIABLE RISKS

Answer 3

A B C D E F G
Accounting Risk
Business Risk — risk of operating in a particular industry
Country Risk — risk of doing business in a particular country
Default Risk — company could default on its obligations
Executive Risk
Financial Risk — amount of financial leverage deployed by the firm (ratio of debt vs equity)
Government Risk — risk that tariffs may be placed on an industry or firm