, -1 correlation - ANSWER-perfect negative correlation
.+1 correlation - ANSWER-perfect positive correlation
.0 correlation - ANSWER-no correlation
.capital allocation line - ANSWER-the efficient frontier when we can lend and borrow at
the risk free rate
.capital theory assumptions - ANSWER-1. non satiation
2. risk aversion
3. rationality
4. mean variance
and
5. a risk free asset exists
6. margin borrowing exists
7. investors have identical expectations
.define correlation coefficient - ANSWER-the degree to which the returns of two stocks
co-move is measured by the correlation coefficient.
range between -1 and 1
.define covariance - ANSWER-a statistical measure of the correlation of the fluctuations
of the annual rates of return of different investments
.define portfolio expected return - ANSWER-the value weighted average of the
expected returns of the individual assets in that portfolio
.harry Markowitz - ANSWER-first to formalize portfolio theory at age 25
- "portfolio selection" in journal of finance
- nobel prize in econ 1990
- investors had a tool to reduce the risk of the portfolio without a significant reduction of
expected return of the portfolio
.how many lines can be drawn from the risk free asset and the Markowitz efficient
frontier - ANSWER-infinite
.how to diversify non-systematic risks? - ANSWER-1. form portfolios
2. investors hold diversified portfolios instead of single assets
.+1 correlation - ANSWER-perfect positive correlation
.0 correlation - ANSWER-no correlation
.capital allocation line - ANSWER-the efficient frontier when we can lend and borrow at
the risk free rate
.capital theory assumptions - ANSWER-1. non satiation
2. risk aversion
3. rationality
4. mean variance
and
5. a risk free asset exists
6. margin borrowing exists
7. investors have identical expectations
.define correlation coefficient - ANSWER-the degree to which the returns of two stocks
co-move is measured by the correlation coefficient.
range between -1 and 1
.define covariance - ANSWER-a statistical measure of the correlation of the fluctuations
of the annual rates of return of different investments
.define portfolio expected return - ANSWER-the value weighted average of the
expected returns of the individual assets in that portfolio
.harry Markowitz - ANSWER-first to formalize portfolio theory at age 25
- "portfolio selection" in journal of finance
- nobel prize in econ 1990
- investors had a tool to reduce the risk of the portfolio without a significant reduction of
expected return of the portfolio
.how many lines can be drawn from the risk free asset and the Markowitz efficient
frontier - ANSWER-infinite
.how to diversify non-systematic risks? - ANSWER-1. form portfolios
2. investors hold diversified portfolios instead of single assets
