ECN 104 Study Guide - Weighted Arithmetic Mean, Fisher Equation, Risk-Free Interest Rate
12 Mar 2014
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Document Summary
Lo1 the calculation for expected returns and standard deviation for individual securities and portfolios. Lo2 the principle of diversification and the role of correlation. Lo4 beta as a measure of risk and the security market line. Answers to concepts review and critical thinking questions. 8. (lo3) some of the risk in holding any asset is unique to the asset in question. By investing in a variety of assets, this unique portion of the total risk can be eliminated at little cost. On the other hand, there are some risks that affect all investments. This portion of the total risk of an asset cannot be costlessly eliminated. The portfolio expected return is a weighted average of the asset returns, so it must be less than the largest asset return and greater than the smallest asset return. (lo2) false. The variance of the individual assets is a measure of the total risk.
