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Study these flashcards

- Wisconsin
- University of Wisconsin - Madison
- Finance
- Finance 275
- La
- Finance Chap 13

Erin F.

• 35

cards
What is the minimum number of states to have uncertainty?

2

When would you put all your eggs in one basket?

You are a fool

You have a crystal ball

List the steps to find portfolio variance and SD

1. Use portfolio weights to compute portfolio return in each state

2. Compute the expected portfolio return by finding the returns on each stock

3. Find the portfolio variance by using the probabilities of states as weights, the expected return of the portfolio, and the expected return in the state

What are the two components to announcement and news? How do they affect stock?

Expected and surprise

Surprises affect the stock price and return

What is systemic risk?

Risk that affects a large number of assets. Lead to correlated price changes

Does systematic risk cauas assets to move alike?

Nope, just moving together

What are some other names for systematic risk?

What are some examples of systematic risk?

What is unsystematic risk?

What are some other names for unsystematic risk?

Total return =

What is portfolio diversification?

What happens to risk, standard deviation, and volatility when you add more assets to your portfolio?

What is a market portfolio? Can you actually hold one?

What is diversifiable risk?

Why is the standard deviation the wrong measure of risk?

How do we measure of systematic risk?

What is the systematic risk principle?

What does beta measure?

Is beta unitless?

Are stocks equally affected by systematic risk?

What happens if you add a stock to your portfolio with a higher beta?

What is the market equilibrium equation?

What happens when a return for an asset is higher than the market equilibrium?

What happens if the return on an asset is lower than market?

What are three factors affecting the return in the CAPM?

What is the security market line a representation of?

Describe the aspects of the security market line equation

What happens when a security goes above the SML?

What happens when a security falls below the line?

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