| A | B |
|---|
| Unsystematic risk can be eliminated by | diversifying |
| systematic risk _____ be eliminated by diversifying | cannot |
| total risk = | systematic risk & unsystematic risk |
| another word for systematic risk | nondiversifiable risk |
| another word for systematic risk or nondiversificable risk | market risk |
| another word for unsystematic risk | diversifiable risk |
| another word for unsystematic risk or diversifiable risk | unique or asset-specific risk |
| for a well diversified portfolio, the unsystemtic risk is | negligible |
| expected return on a risky asset depends only on that assets's systematic risk is called | systematic risk principle |
| systematic risk principle states that the reward for bearing risk depnds only on the | systematic risk of an investment |
| the expected return on an asset depends only on | that asset's systematic risk |
| amount of systematic risk present in a particular risky asset relative to that in an average risky asset is called | beta coefficient |
| an average asset has a beta of | 1.0 |
| an asset has haf as much systemati risk as an average asset if it has a beta of | .5 |
| an asset has twice as much systematic risk as an average asset if it has a beta of | 2.0 |
| assets with larger betas have | greater systematic risks |
| assets with lower betas have | lower systematic risks |
| assets with larger betas have ____expected returns | greater |
| assets with lower betas are expected to have ____ expected returns | lower |
| the beta of a portfolio is equal to the | multiplication of each asset's beta by its portfolio weight added together |
| a risk free aset has a beta of | 0 |
| the reward-to-risk ratio must be the same for | all the assets in the market |
| an asset is ____ if its price is too high given its expected return and risk | overvalued |
| positively sloped straight line displaying the relationship between expected return and beta is called | security market line (1) |
| market risk premium is actually the | slope of the security market line |
| the market risk premium is the slope of the SML which is | the difference between the expected return on a market portfoio and the risk free rate |
| the capital asset pricing model depends on these | pure time value of money, reward for bearing systematic risk & amt. of systematic risk |
| CAPM stands for | capital asset pricing model |
| total return is made of: | expected return and unexpected return |
| unexpected return comes about because of | unanticipated events |
| unanticipated events lead to | risk of investing |
| total risk of an investment is measure by the | variance or standard deviation of return |
| reward to risk ratio = | ratio of risk previum divided by beta |
| all assets plot on the same straight line called the | security market line (2) |
| the securitiy market line tells | the reward for bearing risk in financial markets |
| a good investment should have a | positive NPV |
| to see if an investment has a positive NPV | compare the expected return on that investment to what the financial market offers on an investment with the same beta |
| the securitye market line/SML tells the | "going rate" for bearing risk in the economy |
| appropriate discount rate on a new project is | minimum expected rate of return an investment must offer to be attractive |
| minimum required return is called the | cost of capital associated with an investment |
| the cost of capital can be interpreted as | the opportunity cost associated with the firm's capital investment |
| the reward for bearing risk is | the risk premium on an asset |
| the CAPM/capital asset pricing model, is the | equation of the SML/security market line |
