Finance 3320 Exam 3 Questions and Answers

Finance 3320 Exam 3 Questions and
Answers
what are the three things you need to calculate when working with portfolios -
ANSWER-weights, return, and risk

Rho of -1 - ANSWER-indicates that the returns on two assets are perfectively
negative correlated ( most diversification)

rho of 0 - ANSWER-indicates there is no defined relation between the two assets
returns

rho of 1 - ANSWER-indicates that the returns on two assets are perfectly positively
correlated

unsystematic risk - ANSWER-the portion of portfolio risk that can be diversified,
impacts every stock in the market

expected returns premiums - ANSWER-a maturity premium and risk premium

maturity remium - ANSWER-is the return expected from investing in a risky asset
and foregoing alternative investment opportunities

risk premium - ANSWER-is the return expected from investing in a risky asset; it is
the return earned in excess of the return earned on a risk-free security

market risk premium - ANSWER-the average return on the market minus the return
on the risk free asset

systematic risk is measured by - ANSWER-beta

beta of 1 - ANSWER-implies the asset has the same systematic risk as the overall
market, am average market risk

beta < 1 - ANSWER-implies the asset has less systematic risk than the overall
market

beta > 1 - ANSWER-implies the asset has more systematic risk that the overall
market

total risk - ANSWER-measured by standard deviation, equals systematic risk plus
unsystematic risk

stand alone risk - ANSWER-is measured by the standard deviation, there is no
diversification