Reference no: EM133264798

1. Discuss why all investments would have the same expected return in a world of certainty.
2. Explain the maximum expected return criterion for choosing between alternative risky investments, and why it does not appear investors adhere to such a strategy.
3. Define what is meant by risk aversion, including linking the concept to diminishing marginal utility for wealth.
4. Explain the mean variance criterion for portfolio selection and identify the mean variance dominant investments from a given opportunity set.
5. Calculate both expected and actual returns on portfolios.
6. Calculate the standard deviation of a two-security portfolio using two methods, and explain what it tells us.
7. Calculate and interpret the covariance and correlation coefficient between the returns of any two securities.
8. Interpret the relationship between the covariance and the correlation coefficient.
9. Explain the importance of the correlation coefficient (covariance) in portfolio diversification.
10. Identify the portfolios that can be formed from two securities in risk/return (expected return/standard deviation) space.
11. Explain how the equation for an N security portfolio standard deviation differs from that for the two-security case.
12. Provide an intuitive explanation of the tradeoffs involved when diversifying.
13. Explain how to conduct a study to assess the risk reduction possible via random diversification, and the major conclusions from such studies.
14. Distinguish between the total risk, systematic risk, and unsystematic risk of a security or portfolio.
15. Explain what efficient (Markowitz) diversification is, and the basic approach that would be followed to generate the efficient frontier.
16. Discuss why it is difficult to generate the efficient frontier in practice.