ESSENTIALS OF INVESTMENTS CHAPTER 6 QUESTIONS WITH CORRECT ANSWERS

ESSENTIALS OF INVESTMENTS
CHAPTER 6 QUESTIONS WITH
CORRECT ANSWERS 2026-2027
marke, systematic, nondiversiable risk - correct answer-risk factors common to the whole economy



unique, firm-specific, nonsystematic, diversiable risk - correct answer-
risk that can be eliminated by diversification (4 names)



investment opportunity set - correct answer-set of available portfolio risk-return combinations
X2 X2 X2 X2 X2 X2 X2 X2 X2 X2




optimal risky portfolio - correct answer-
X2 X2 X2 X2 X2




the best combination of risky assets to be mixed with safe assets to form the complete portfolio
X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2




efficient frontier - correct answer- X2 X2 X2 X2




graph representing a set of portfolios that maximizes expected return at each level of portfolio risk
X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2




seperation property - correct answer- X2 X2 X2 X2




the property that implies portfolio choice can be seperated into two independent tasks: (1) determina tio
X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2




n of the optimal risky portfolio, which is a purely technical problem, and (2) the personal choice of the be
X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X 2 X2




st mix of the risky portfolio and the risk-free asset
X2 X2 X2 X2 X2 X2 X2 X2 X2




index model - correct answer-
X2 X2 X2 X2




model that relates stock returns to returns on both a broad market index and firm-specific factors
X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2




excess return - correct answer-rate of return in excess of the risk-free rate
X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2




beta - correct answer-the sensivity of a security's returns to the market factor
X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2 X2




firm-specific or residual risk - correct answer- X2 X2 X2 X2 X2 X2




component of return variance that is independent of the market factor
X2 X2 X2 X2 X2 X2 X2 X2 X2 X2