How to construct a risk-free portfolio using two assets?
Find two assets with correlation between them equal to -1
Find two assets with correlation between them equal to 1
Find two assets with correlation between them bigger than 0 but smaller than 1
Find two assets with correlation between them bigger than -1 but smaller than 0
Stock A and B are identical in terms of their expected cash flows. Investors like stock A more than stock B today for reasons unrelated to expected cash flows. They should pay ______ price today to buy A than to buy B. As a result, stock A is expected to have _______ expected return than stock B.
Lower, Lower
Higher; Lower
Higher; Higher
Lower, Higher
What risk is likely to particularly explain the pattern of small firm effects?
Recession risk
Large firms are overvalued
Firm specific risk
Small firms are subject to more behavioral errors from traders
Decreasing the number of stocks in a portfolio from almost infinite number of stocks to just 10 stocks would likely ________________.
increase the return of the portfolio
decrease the variation in returns the investor faces in any one year
increase the systematic risk of the portfolio
increase the unsystematic risk of the portfolio