ESSENTIALS OF INVESTMENTS
CHAPTER 6 QUESTIONS WITH
CORRECT ANSWERS 2026-2027
marke, systematic, nondiversiable risk - correct answer-risk factors common to the whole economy
unique, firm-specific, nonsystematic, diversiable risk - correct answer-
risk that can be eliminated by diversification (4 names)
investment opportunity set - correct answer-set of available portfolio risk-return combinations
optimal risky portfolio - correct answer-
the best combination of risky assets to be mixed with safe assets to form the complete portfolio
efficient frontier - correct answer-
graph representing a set of portfolios that maximizes expected return at each level of portfolio risk
seperation property - correct answer-
the property that implies portfolio choice can be seperated into two independent tasks: (1) determina
tion of the optimal risky portfolio, which is a purely technical problem, and (2) the personal choice of
the best mix of the risky portfolio and the risk-free asset
index model - correct answer-
model that relates stock returns to returns on both a broad market index and firm-specific factors
excess return - correct answer-rate of return in excess of the risk-free rate
beta - correct answer-the sensivity of a security's returns to the market factor
firm-specific or residual risk - correct answer-
component of return variance that is independent of the market factor
CHAPTER 6 QUESTIONS WITH
CORRECT ANSWERS 2026-2027
marke, systematic, nondiversiable risk - correct answer-risk factors common to the whole economy
unique, firm-specific, nonsystematic, diversiable risk - correct answer-
risk that can be eliminated by diversification (4 names)
investment opportunity set - correct answer-set of available portfolio risk-return combinations
optimal risky portfolio - correct answer-
the best combination of risky assets to be mixed with safe assets to form the complete portfolio
efficient frontier - correct answer-
graph representing a set of portfolios that maximizes expected return at each level of portfolio risk
seperation property - correct answer-
the property that implies portfolio choice can be seperated into two independent tasks: (1) determina
tion of the optimal risky portfolio, which is a purely technical problem, and (2) the personal choice of
the best mix of the risky portfolio and the risk-free asset
index model - correct answer-
model that relates stock returns to returns on both a broad market index and firm-specific factors
excess return - correct answer-rate of return in excess of the risk-free rate
beta - correct answer-the sensivity of a security's returns to the market factor
firm-specific or residual risk - correct answer-
component of return variance that is independent of the market factor
