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34 Cards in this Set
- Front
- Back
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The return on a risky asset sometime in the future
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expected return
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Expected returns are based on the ______ of possible outcomes
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probabilities
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measure the volatility of returns
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variance and standard deviation
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a collection of assets
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portfolio
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measured by the portfolio expected return and standard deviation
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risk-return trade-off
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weighted average of the expected returns of respective assets in portfolio
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portfolio expected return
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each stock individually has (greater/less) variance than the portfolio overall
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greater
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realized returns (reality) are not generally equal to ________
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expected returns (theory)
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At any point in time, the unexpected return can be either ____ or _____
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positive; negative
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over time, the average return of the unexpected component is ____
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zero
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The surprise component affects a stock's _____ and therefore its _____
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price; return
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______ ______ are a result of investors trading on the _____ portion of announcements
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efficient markets; unexpected
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The _____ it is to trade on surprises, the more ____ markets should be - speed
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easier; efficient
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Efficient markets involve _____ _____ ______ because we cannot predict surprises
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random price changes
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risk factors that affect a large number of assets
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systematic risk
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also known as non-diversifiable risk or market risk
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systematic risk
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includes GDP, inflation, and interest rates; unmitigatable
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systematic risk
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risk factors that affect a limited number of assets
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unsystematic risk
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also known as unique risk and asset-specific risk
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unsystematic risk
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includes labor strikes, part shortages
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unsystematic risk
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expected return + systematic portion + unsystematic portion =
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total return
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systematic portion + unsystematic portion =
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unexpected return
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The investment in several different asset classes or sectors
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portfolio diversification
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Diversification can substantially reduce the _____ of returns without an equivalent reduction in _____ _____
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variability; expected returns
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the minimum level of risk that cannot be diversified away is the ____ portion
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systematic
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The risk that can be eliminated by combining assets into a portfolio
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diversifiable risk
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_____ risk is often considered the same as unique or asset-specific risk
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diversifiable risk
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The ____ ____ of returns is the measure of total risk
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standard deviation
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For well-diversified portfolios, unsystematic risk is very ____
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small
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The ___ ____ for a diversified portfolio is essentially equivalent to the ____ ____
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total risk; systematic risk
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The expected return on a risky asset depends only that asset's ____ risk since ____ risk can be diversified away
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systematic; unsystematic
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A beta of 1 implies that the asset has ____ systematic risk as the overall market
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same
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A beta < 1 implies that the asset has ____ systematic risk as the overall market
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less
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A beta > 1 implies that the asset has ____ systematic risk as the overall market
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more
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