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15 Cards in this Set

  • Front
  • Back
Capital allocation line (CAL)
A graph showing all feasible risk-return combinations of a risky and risk-free asset.
Capital market line (CML)
A capital allocation line provided by the market index portfolio.
Certainty equivalent rate
The certain return providing the same utility as a risky portfolio.
Complete portfolio
The entire portfolio, including risky and risk-free assets.
Fair game
An investment prospect that has a zero risk premium.
Indifference curve
A curve connecting all portfolios with the same utility according to their means and standard deviations.
Mean-variance criterion
The selection of portfolios based on the means and variances of their returns. The choice of the higher expected return portfolio for a given level of variance or the lower variance portfolio for a given expected return.
Passive strategy
See passive management.
Reward-to-variability ratio
Ratio of a portfolio's risk premium to its standard deviation.
Risk-averse, risk-neutral, risk lover
A risk-averse investor will consider risky portfolios only if they provide compensation for risk via a risk premium. A risk-neutral investor finds the level of risk irrelevant and considers only the expected return of risk prospects. A risk lover is willing to accept lower expected returns on prospects with higher amounts of risk.
Risk lover
See risk-averse.
See risk-averse.
Risk premium
An expected return in excess of that on riskfree securities. The premium provides compensation for the risk of an investment.
Risk-free asset
An asset with a certain rate of return; often taken to be short-term T-bills.
The measure of the welfare or satisfaction of an investor.