Chapter Two: Valuation, Risk, Return, and Uncertainty

Return, expected return

Technically, _____ refers to the past; _____ refers to the future.

Most people will not take a fair bet

The St. Petersburg paradox explains why

Greater, greater

The _____ the dispersion in a series of numbers, the ____ the gap between the arithmetic and geometric mean.

Greater than or equal to

The arithmetic mean is always _______ the geometric mean.

Geometric mean

The correct method for measuring the average return over several periods in the past is with a(n)

Zero

The covariance between a random variable and a constant is

Most people will not take a fair bet

The diminishing marginal utility of money explains why

Mean

The expected value of a random variable is also called the

Only take risks for which they are properly rewarded

The fact that most investors are risk averse means they will

Undiversifiable

The market rewards investors for bearing _____risk.

Point where half of the observations lie on either side

The median of a distribution is the

There is no minimum value

The minimum value of covariance is

-1

The minimum value of the correlation coefficient is

Tennis

The text described an example of the diminishing marginal utility of money with a statement made by a _____ player.

Leverage

The use of _____ can dramatically affect an investor's return

Annuity due

The winner of a state lottery usually receives a(n)

Arithmetic mean

Total risk can be measured by all of the following except

Price and convenience

Two large classes of risk are

Not symmetrical

Using semivariance to measure risk is appropriate if the return distribution is

All of the above

Wearing a Rolex watch is an example of someone getting

Logarithms

Which of the following can help reduce the effect of outliers?

Mean

Which of the following is a measure of central tendency?

It is independent of the passage of time

Which of the following is true of the holding period return?

Some people are more risk averse than others

Which of the following statements is true?

Binomial

A coin-flipping experiment in which you measure heads or tails takes observations from a _____ distribution.

Over periods of the same length

A holding period return should only be compared with returns calculated

Univariate

A jar contains a mixture of coins; you need a quarter. From your perspective, the distribution of coins in the jar is

Random variable

A tilde (~) over a symbol indicates it is a

Dependent variable

A variable whose value is based on the value of other variables is a(n)

Return on investment

According to the book, which of the following terms can mean different things to different people?

Finite, constant

An ordinary annuity is a _____ series of _____ cash.

Zero

Assume the risk-free rate is constant over time. The correlation between the return on security x and the return on the risk-free asset is

Counted, measured

Discrete random variables are _____; continuous random variables are ______. A. qua

Skewness

If a distribution shows more possible outcomes on one side of the mean than the other, the distribution shows

Riskier than average

If a stock has a higher than average expected return, you would logically expect it is

Negative

If two securities are negatively correlated, their covariance is

Consumed

In economic theory, if money is not saved, it is

Market interest rates

Individual consumption decisions are a major factor in determining

Utility, expected return

Individual investment behavior is more a function of _____ than _____.

Losing a given amount of money would reduce utility more than winning the same amount would increase utility

Most investors would not be interested in a fair bet because

Total risk

Overall variability of returns is called

Goodness of fit

R squared is a measure of

Sample

Random variables reside in a population

Benefit associated with an investment

Return is the

Negative returns

Return relatives are calculated primarily to deal with the potential problem of

Dispersion of returns

Risk is often measured as

A chance of loss

Risk must involve

Higher expected

Riskier securities have _____ returns.

Adverse variation

Semi-variance only considers