$2.$ Basic concepts

Match the terms relating to the basic terminology and concepts of risk and rates of return the descriptions of the terms. Read each description carefully and select the correct term. These are not necessarily complete definitions, but there is only one$$possible answer for each term.

DescriptionTermThis model determines the appropriate required return on a security as the sum of the market$$s risk$-$free rate and a risk premium based on the market$$s risk premium and the security$$s beta coefficient.$$The general term that describes the portion of an asset$$s total expected return that is greater than the return earned on the market$$s risk$-$free rate.$$That portion of an investment$$s risk calculated as the difference between its total risk and its firm$-$specific risk.$$The practice of creating a portfolio of assets for the purpose of reducing the stand$-$alone risk of the individual assets in the portfolio.$$The potential for variability in the possible outcomes associated with an investment.$$The condition in which the expected return on a security equals its required return, and there is no pressure on its price to change.$$A measure of the extent to which the returns on a given investment are correlated with the returns of a market portfolio.$$The value of this ranges from $+1\mathrm{.}0,$ denoting that two variables move up and down in perfect synchronization to $1\mathrm{.}0,$ denoting that two variables move up and down in exactly opposite directions.$$The rate of return expected to be realized from an investment, calculated as the mean of the probability distribution of its possible returns.$$The risk of an asset when it is the only asset in an investor$$s portfolio.