Finance Ch 9 LS
investing in a single stock can be riskier than ______________.
investing in the S&P500
an investor who purchases a high-risk investment should expect to earn a higher rate of return over which period of time?
long term
Which of these is the portion of total risk that is attributable to overall economic factors?
market risk
what type of risk exists in a fully-diversified portfolio?
market risk only
what type of relationship exists between risk and expected return?
positive
how can firm-specific risk be defined?
risk that can be reduced by diversification
how to calculate the coefficient of variation (CoV) for a security?
standard deviation/average return
what is a geometric mean return?
the equivalent return that is compounded for N periods.
the higher the long-term rate of return on an asset class, _________________.
the higher its risk level
Modern portfolio theory (MPT) is designed to achieve ________________.
highest return for a given level of risk
the percentage total return on a stock investment is expressed as a percentage of what?
initial investment
market risk applies to _____________.
all firms and individuals
dollar return =
= capital gain or loss + income = (ending value - beginning value) + income
lew has a portfolio comprised of $3,000 of stock A, $5,000 of stock B, and $2,000 of stock C. How is the portfolio weight of stock C computed?
$2,000/($3,000+$5,000+$2,000)
Which of these is a measure of risk to reward earned by an investment over a specific period of time?
Coefficient of variation
_____________ are riskier than Treasury bills.
Long-term Treasury bonds
Which of the following is the correct ranking from least risky to most risky?
Treasury bills, long-term Treasury bonds, stocks
Firm specific risk
Which of the following is defined as the portion of total risk that is attributable to firm or industry factors and can be reduced through diversification?
Percentage return
Which of these is the dollar return characterized as a percentage of money invested?
maria bought a stock one year ago for $16 a share. the stock pays quarterly dividends of $0.12 and is currently valued at $17 a share. How is the percentage return computed?
[$17-$16 + (4x0.12)]/$16
standard deviation
a measure of past return volatility, or risk, of an investment.
correlation
a measurement of the co-movement between two variables that ranges between -1 and +1.
how can the percentage return on a stock be defined?
dollar return/ money invested
dollar return
earned includes any capital gain (or loss) that occurred as well as any income that you received over the period.
the deviations must be squared to eliminate all ______________ .
negative values
Which of the following is another term for market risk?
nondiversifiable risk
market risk
the portion of total risk that is attributable to overall economic factors.
what does standard deviation measure?
total risk
If you observe a high variability in a stock's returns you can infer that the stock is very risky.
true
There is a positive relationship between risk and return.
true
Total risk is measured by the standard deviation.
true
what is the shape of the efficient frontier and what does this imply?
upward-sloping: direct relationship between risk and return
