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LJV 4801 PORTFOLIO THEORY (QUALITY ANSWERS)
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LJV 4801 PORTFOLIO THEORY (QUALITY ANSWERS) -1 correlation - ANSWER-perfect negative correlation .+1 correlation - ANSWER-perfect positive correlation .0 correlation - ANSWER-no correlation .capital allocation line - ANSWER-the efficient frontier when we can lend and borrow at the ri...

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  • June 17, 2024
  • 5
  • 2023/2024
  • Exam (elaborations)
  • Questions & answers

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  • ljv 4801
  • portfolio

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, -1 correlation - ANSWER-perfect negative correlation

.+1 correlation - ANSWER-perfect positive correlation

.0 correlation - ANSWER-no correlation

.capital allocation line - ANSWER-the efficient frontier when we can lend and borrow at
the risk free rate

.capital theory assumptions - ANSWER-1. non satiation
2. risk aversion
3. rationality
4. mean variance

and

5. a risk free asset exists
6. margin borrowing exists
7. investors have identical expectations

.define correlation coefficient - ANSWER-the degree to which the returns of two stocks
co-move is measured by the correlation coefficient.

range between -1 and 1

.define covariance - ANSWER-a statistical measure of the correlation of the fluctuations
of the annual rates of return of different investments

.define portfolio expected return - ANSWER-the value weighted average of the
expected returns of the individual assets in that portfolio

.harry Markowitz - ANSWER-first to formalize portfolio theory at age 25
- "portfolio selection" in journal of finance
- nobel prize in econ 1990
- investors had a tool to reduce the risk of the portfolio without a significant reduction of
expected return of the portfolio

.how many lines can be drawn from the risk free asset and the Markowitz efficient
frontier - ANSWER-infinite

.how to diversify non-systematic risks? - ANSWER-1. form portfolios
2. investors hold diversified portfolios instead of single assets

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