FIN 455 EXAM 2 CSU – TURTLE VERIFIED ACCURATE
STUDY GUIDE
Chapter 6: One risky one riskless asset
Risk vs return tradeoff - Answers -Prefer to move northwest on the plot -->m= maximize
utility
Indifference Curves - Answers -Equally preferred portfolios will lie in the mean-standard
deviation plane on an indifference curve
Curve connects all portfolio points with the same utility value
Risk Aversion and Utility - Answers -Each investor has a subjective view of risk, we
assume investors are risk averse but we recognize that risk neutral and risk seeking
behavior occurs in specific situations
Investment opportunities may be characterized using an expected utility framework
(U=E(r) - 0.5A (stand dev)^2
A>0 is risk verse, = 0 is risk neutral, <risk loving
Combining a risky and riskless portfolio - Answers -Greater levels of risk aversion lead
investors to choose larger proportions of the risk free rate
Willingness to accept high levels of risk for high levels of returns would result in
leveraged combinations
ESG - Answers -Environmental, Social, Governance
Environment - Answers -Climate change, pollution, greenhouse gas, carbon footprint,
water availability, sea-levels, renewable energy, reduce reuse recycle
Social - Answers -Employee pay, benefits, engagement, turnover, diversity, inclusion,
ethical supply chains, corporate social responsibility, social justice issues
Governance - Answers -Executive compensation, use of golden parachutes, board
diversity and independence, voting structures
ESG investing accounts for - Answers -26% of managed assets
Positive and negative filters
Activism
Friedman Doctine - Answers -suggests corporations should maximize shareholder
value --> counters the ESG framework
Sustainable investing - Answers -Growing quickly, topped $30 trillion
STUDY GUIDE
Chapter 6: One risky one riskless asset
Risk vs return tradeoff - Answers -Prefer to move northwest on the plot -->m= maximize
utility
Indifference Curves - Answers -Equally preferred portfolios will lie in the mean-standard
deviation plane on an indifference curve
Curve connects all portfolio points with the same utility value
Risk Aversion and Utility - Answers -Each investor has a subjective view of risk, we
assume investors are risk averse but we recognize that risk neutral and risk seeking
behavior occurs in specific situations
Investment opportunities may be characterized using an expected utility framework
(U=E(r) - 0.5A (stand dev)^2
A>0 is risk verse, = 0 is risk neutral, <risk loving
Combining a risky and riskless portfolio - Answers -Greater levels of risk aversion lead
investors to choose larger proportions of the risk free rate
Willingness to accept high levels of risk for high levels of returns would result in
leveraged combinations
ESG - Answers -Environmental, Social, Governance
Environment - Answers -Climate change, pollution, greenhouse gas, carbon footprint,
water availability, sea-levels, renewable energy, reduce reuse recycle
Social - Answers -Employee pay, benefits, engagement, turnover, diversity, inclusion,
ethical supply chains, corporate social responsibility, social justice issues
Governance - Answers -Executive compensation, use of golden parachutes, board
diversity and independence, voting structures
ESG investing accounts for - Answers -26% of managed assets
Positive and negative filters
Activism
Friedman Doctine - Answers -suggests corporations should maximize shareholder
value --> counters the ESG framework
Sustainable investing - Answers -Growing quickly, topped $30 trillion
