Question

You have recently been appointed chief investment officer of a major charitable foundation. Its large endowment fund is currently invested in a broadly diversified portfolio of stocks (60 percent) and bonds (40 percent). The foundations board of trustees is a group of prominent individuals whose knowledge of modern investment theory and practice is superficial.

You decide a discussion of basic investment principles would be helpful.

a. Explain the concepts of specific risk, systematic risk, variance, covariance, standard deviation, and beta as they relate to investment management. You believe that the addition of other asset classes to the endowment portfolio would