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Flashcards in Investment Exam 2 Deck (34):
1

during the 1926-2010 period the geometric mean return on small firm stock was

11.80%

2

during the 1926-2010 period the geometric mean return on Treasury bonds was

5.12%

3

during the 1926-2010 period the Sharpe ratio was greatest for

large US stocks

4

during the 1926-2010 period the Sharpe ratio was lowest for

Long-term US treasury bonds

5

during the 1926-2010 which provided the lowest real return

Long-term US treasury bonds

6

over the long run which of the following assets has the best chance to provide the best after-inflation, after-tax rate of return

common stock

7

what statistic cannot be negative

variance

8

the correlation coefficient between two assets equals

their covariance divided by the product of their standard deviations

9

beta is a measure of security responsiveness to

market risk

10

market risk is also called what? (2)

systematic risk
nondiversifiable risk

11

firm specific risk is also called what (2)

unique risk
diversifiable risk

12

Harry Markowitz best known for

techniques used to identify efficient portfolios of risk assets

13

the difference between the rate of return earned and the risk free rate

excess return

14

diversification can reduce or eliminate ___ risk

nonsystematic

15

If an investor does not diversify his portfolio and instead puts all of his money in one stock, the appropriate measure of security risk for that investor is the

stocks standard deviation

16

corr. coeff. will produce most diversification benefits is the ____ number

lowest

17

corr. coeff. will produce least diversification benefits is the ____ number

highest

18

Investing in two assets with a correlation coefficient of -.5 will reduce what kind of risk?

unique risk

19

Investing in two assets with a correlation coefficient of 1 will reduce which kind of risk?

no risk

20

The capital asset pricing model was developed by _________.

william sharpe

21

arbitrage pricing theory developed by

stephen ross

22

According to the capital asset pricing model, a security with a positive alpha is considered

underpriced

23

Investors require a risk premium as compensation for bearing ____ risk

systematic

24

a stocks alpha measures the stock's

abnormal return

25

weak form of EMH states what must be reflected in current stock price:

all past information, including security price and volume data

26

semistrong form of EMH states what must be reflected in current stock price

all publicly available information

27

strong form of EMH states what must be reflected in current stock price

all information, including inside information

28

when the market risk premium rises, stock prices will

fall

29

stock price behavior: ___-run momentum; ____-run reversal patterns

short-run; long-run

30

Choosing stocks by searching for predictable patterns in stock prices is called

technical analysis

31

Basu found that firms with high P/E ratios earned ____ average returns than firm with low P/E ratios

lower

32

price behavior that differs from the behavior predicted by the efficient market hypothesis

market anomaly

33

Value stocks usually exhibit ______ price-to-book ratios and ______ price-to-earnings ratios

low; low

34

Growth stocks usually exhibit ______ price-to-book ratios and ______ price-to-earnings ratios.

high;high