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# DeHan Fin. Ch. 8

### Finance Ch. 8 Review

Question | Answer |
---|---|

Market risk refers to the tendency of a stock to move with the general stock market. A stock with above-average market risk will tend to be more volatile than an average stock, and it will have a beta which is greater than 1.0. (True or False?) | True |

In a real world, the type of security that generates a return that is nearest to a risk-free rate of return is a Treasury Bill. (True or False?) | True |

Risk is indicated by variability, whether the variability is considered + or - outcomes must be evaluated when considering risk because all unexpected possibilities should be examined, even the positive ones. (True or False?) | True |

A listing of all possible outcomes, or events with a probability assigned to each is a called a probability distribution. | True |

Assume Stock A has a SD of .21 while Stock B has a SD of .10. If both Sock A and B must be gel pin isolation, and if investors are risk averse, we can conclude that stock Stock A will have a greater required return. However, if the assets could be help in | True |

The tiger the probability distribution, the less variability there is and the less likely it is that the actual outcome will be close to the expected value; consequently the more likely it is that the actual return will be much different from the expected | False |

Combining stocks with perfectly correlated stock returns into a portfolio is less risky than holding an individual stock since the portfolio will benefit from diversification. (True or False?) | False |

Choose the correct answer for the following: (1) Which is the best measure of risk for choosing and asset which is to be help in isolation? (2) Which is the best measure fro choosing an asset to be held as part of a diversified portfolio? | Coefficient of variation; beta |

Stock A has a beta of 1.5 and Stock B has a beta of .5. Which if the following statements must be true about these securities? (Assume the market is in equilibrium.) | The expected return on Stock A will be greater that that on Stock B. |

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