Chapter 6 - 14. Classify each of the following as an...

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Yi Chen 8/19/2011 Chapter 6 9. Define what is meant by a portfolio, and describe how the expected return on a portfolio is computed. A portfolio is any combination of financial assets or investments. The Expected Return on a Portfolio is computed as the weighted average of the expected returns on the stocks which comprise the portfolio. The weights reflect the proportion of the portfolio invested in the stocks. This can be expressed as follows: where E[R p ] = the expected return on the portfolio, N = the number of stocks in the portfolio, w i = the proportion of the portfolio invested in stock i, and E[R i ] = the expected return on stock i.
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Unformatted text preview: 14. Classify each of the following as an example of systematic or unsystematic risk: a. The labor unions at Caterpillar, Inc. declared a strike yesterday. Unsystematic risk b. Contrary to what polls predicted, the president was reelected. Systematic risk c. Disagreement about inflation policy leads to a fall in the euro relative to the dollar. Systematic risk d. The computer industry suffers lower profits because of aggressive pricing strategies on new desktop computers. Unsystematic risk e. Every Christmas selling season, there is a hot toy that many parents try to purchase for their child. Unsystematic risk...
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