financial management final

Which of the following processes can be used to calculate future value for multiple cash flows?

-compound the accumulated balance forward on year at a time -calculate the future value of each cash flow first and then add them up

Of the options listed below, which is the best example of unsystematic risk?

A national decrease in consumer spending on entertainment

Which of the following statements are true of a well-diversified portfolio's expected return?

I. It cannot exceed the expected return of the best performing security in the portfolio. II. It must be equal to or greater than the expected return of the worst performing security in the portfolio. III. It is independent of the unsystematic risks of the individual securities held in the portfolio.

included when calculating the expected return on a portfolio

I. Percentage of the portfolio invested in each individual security II. Projected states of the economy III. The performance of each security given various economic states IV. Probability of occurrence for each state of the economy

Market Value of Investment

In weighted average, we use this to calculate expected rate of return

Systematic/ market risk

Investors panic causing security prices around the globe to fall precipitously.

Which of the following statements regarding unsystematic risk is accurate?

It can be effectively eliminated by portfolio diversification.

Which of the following statements is true of a portfolio's standard deviation?

It can be less than the standard deviation of the least risky security in the portfolio.

With respect to returns, which one of the following statements is accurate?

Over time, the average unexpected return will be zero.

Portfolio weight

The percentage of an investment portfolio that a particular holding or type of holding comprises.

portfolio

a group of securities either stocks or bonds that the investor is having.

most basic way to determine the weight of an asset

dividing the dollar value of a security by the total dollar value of the portfolio.

Unsystematic Risk

he type of uncertainty that comes with the company or industry you invest in. It is diversifiable.

When valuing cash flows, you can either value multiple cash flows or a single sum, also known as a(n) _____ sum.

lump

Given a well-diversified stock portfolio, the variance of the portfolio:

may be less than the variance of the least risky stock in the portfolio.

Buchi owns several financial instruments: stocks issued by seven different companies, plus bonds issued by four different companies. Her investments are best described as a(n):

portfolio

Most financial securities have some level of ________ risk.

systematic

Of the options listed below, which is the best example of systematic risk?

the component of risk affecting the entire market. Hence it cannot be diversified away easily.