Business Finance Final-Appeadu

Unsystematic

A news flash just appeared that caused a dozen stocks to suddenly drop in value by 20 percent. What type of risk does this news flash best represent?

Percentage of the portfolio invested in each individual security, projected status of the economy, the performance of each security given various economic states, and probability of occurrence of each state of the economy.

Expected Return on a Portfolio considers?

Gambler's Fallacy

Heuristic that assumes a departure from the average will be corrected in the short-term

Strong form efficient

Inside information has the least value, when financial markets are

Risk Premium

Last year, T-bills returned 2 percent while your investment in large-company stocks earned an average of 5 percent. What term refers to the difference between these two rates of return

House Money

More likely to risk money that has been "won" than that which has been "earned"

Representativeness and Randomness

Perceiving patterns where none exist

The "Affect" Heuristic

Reliance on instinct or emotion

Representativeness Heuristic

Reliance on stereotypes or limited samples to form opinions of an entire group

Loss Aversion

Retain losing investments to long

Systematic Risk

Risk factors that affect a large number of assets, also known as non-diversifiable risk or market risk ex-GDP,inflation, interest rates, etc.

Market Risk Premium

Slope of the security market line

Principle of Diversification

Spreading of an investment across many diverse assets will eliminate some of the total risk

Volatility

Standard Deviation is a measure of...?

Geometric

The average compound return earned per year over a multiyear period is called the ________ average return

Variance of an investment's annual returns over a number of years

The average squared difference between the actual returns and the arithmetic average return

Return of a risky security minus the risk free rate

The excess return is computed as the

Small Company Stocks

Which one of the following categories of securities had the highest average return for the period 1926-2013

Regret Aversion

is the tendency to avoid making a decision because you fear that, in hindsight, the decision would have been less than optimal.

Endowment Effect

is the tendency to consider something that you own to be worth more than it would be if you did not own it

Myopic Loss Aversion

is the tendency to focus on avoiding short-term losses, even at the expense of long-term gains

Unsystematic Risk

risk factors that affect a limited number of assets ex-labor strikes, part shortages, etc.

Money Illusion

you are confused between real buying power and nominal buying power