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