risk-neutral | If a manager prefers a higher return investment regardless of its risk, then he is following a ________ strategy. |

risk-seeking | If a manager prefers investments with greater risk even if they have lower expected returns, then he is following a ________ strategy. |

risk-averse | If a manager requires greater return when risk increases, then he is said to be ________. |

scenario analysis | A common approach of estimating the variability of returns involving the forecast of pessimistic, most likely, and optimistic returns associated with an asset is called ________. |

range | ______ is the extent of an asset’s risk. It is found by subtracting the pessimistic outcome from the optimistic outcome. |

bar chart | The simplest type of probability distribution is a ________. |

probability | The ________ of a given outcome is its chance of occurring. |

probability | A(n) ________ distribution shows all possible outcomes and associated probabilities for a given event. |

standard deviation | A ________ measures the dispersion around the expected value. |

coefficient of variation | A ________ is a measure of relative dispersion used in comparing the risk of assets with differing expected returns. |

lower; lower | The ________ the coefficient of variation, the ________ the risk. |

efficient | A(n) ________ portfolio maximizes return for a given level of risk, or minimizes risk for a given level of return. |

correlation | ________ is a statistical measure of the relationship between any two series of numbers. |

positively; +1; negatively; -1 | Perfectly ________ correlated series move exactly together and have a correlation coefficient of ________, while perfectly ________ correlated series move exactly in opposite directions and have a correlation coefficient of ________. |

the same; a lower | Combining negatively correlated assets having the same expected return results in a portfolio with ________ level of expected return and ________ level of risk. |

diversification | Combining two negatively correlated assets to reduce risk is known as ________. |

nondiversifiable risk | Systematic risk is also referred to as ________. |

nondiversifiable risk | Risk that affects all firms is called ________. |

unsystematic risk | The portion of an asset’s risk that is attributable to firm-specific, random causes is called ________. |

systematic risk | Relevant portion of an asset’s risk attributable to market factors that affect all firms is called ________. |

diversifiable | ________ risk represents the portion of an asset’s risk that can be eliminated by combining assets with less than perfect positive correlation. |

unsystematic | ____________ risk can be eliminated through diversification |

diversifiable risk | Strikes, lawsuits, regulatory actions, or the loss of a key account are all examples of ________. |

nondiversifiable risk | War, inflation, and the condition of the foreign markets are all examples of ________. |

reduce risk | The purpose of adding an asset with a negative or low positive beta is to ________. |

is equal to 0 | The beta associated with a risk-free asset ________. |

total; diversifiable; nondiversifiable | As randomly selected securities are combined to create a portfolio, the ________ risk of the portfolio decreases until 10 to 20 securities are included. The portion of the risk eliminated is ________ risk, while that remaining is ________ risk. |

0.25 | Nico wants to invest all of his money in just two assets: the risk-free asset and the market portfolio. What is Nico’s portfolio beta if he invests a quarter of his money in the market portfolio and the rest in the risk free asset? |

increase; an increase; a decrease | A(n) ________ in the beta coefficient normally causes ________ in the required return and therefore ________ in the price of the stock, everything else remaining the same. |

nondiversifiable risk | In the capital asset pricing model, the beta coefficient is a measure of ________. |

market risk | In the capital asset pricing model, the beta coefficient is a measure of ________. |

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