BUSI 2504 Study Guide - Fisher Equation, Capital Asset Pricing Model, Risk-Free Interest Rate

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Lo1 the calculation for expected returns and standard deviation for individual securities and portfolios. Lo2 the principle of diversification and the role of correlation. Lo4 beta as a measure of risk and the security market line. Answers to concepts review and critical thinking questions. 8. (lo3) if the market expected the growth rate in the coming year to be 2 percent, then there would be no change in security prices if this expectation had been fully anticipated and priced. The variance of the individual assets is a measure of the total risk. The variance on a well- diversified portfolio is a function of systematic risk only. (lo4) yes. It is possible, in theory, to construct a zero beta portfolio of risky assets whose return would be equal to the risk-free rate. It is also possible to have a negative beta; the return would be less than the risk-free rate.