FIN 301
FIN 301 EXAM QUESTIONS AND ANSWERS GRADED
A+.
low risk investments have... answer >>>>>> lower expected returns
high risk investments have... answer >>>>>> higher expected returns
the least risky investment answer >>>>>> treasury bills
the riskiest investment answer >>>>>> small company common stocks
price/return volatility is a way to measure? answer >>>>>> risk
a rational investor requires a higher expected return to accept... answer >>>>>>
additional risk
model that describes the tradeoff between risk and return... answer >>>>>> capital
asset pricing model (CAPM)
,FIN 301
CAPM equation answer >>>>>> = risk free rate + [Beta * (Market Risk Premium -
Return on Market)]
rate of return equation answer >>>>>> = (cash pmt. + change in price) / price paid
a capital gain/loss is realized when... answer >>>>>> the asset is sold
risk is measured by... answer >>>>>> the possible range of returns around an
expected return, known as the standard deviation
a greater the standard deviation of a stock means... answer >>>>>> more
fluctuations and greater risk
simple averages can be misleading when... answer >>>>>> analyzing returns
_______ or _______ averages are more representative of actual investment
performance answer >>>>>> compound or geometric
simple averages are misleading because... answer >>>>>> they can hide poor
performances
relationship between beta and return is... answer >>>>>> positive
stock return estimate equation answer >>>>>> = market return * beta
beta is a measure of... answer >>>>>> market magnification
, FIN 301
systematic risk is measured by... answer >>>>>> beta
the market related risk that you are paid to take is... answer >>>>>> systematic
the risk that cannot be diversified away is... answer >>>>>> systematic
the firm specific risk that affects the return of that firm or industry only is... answer
>>>>>> unsystematic
the risk that can be diversified away is... answer >>>>>> unsystematic
in a diversified portfolio, which risk averages out to be 0? answer >>>>>>
unsystematic
which risk are you not paid to take? answer >>>>>> unsystematic
alpha is a measure of... answer >>>>>> performance
alpha equation answer >>>>>> = observed return of asset - expected return of asset
a positive alpha is... answer >>>>>> good
a negative alpha is... answer >>>>>> bad
FIN 301 EXAM QUESTIONS AND ANSWERS GRADED
A+.
low risk investments have... answer >>>>>> lower expected returns
high risk investments have... answer >>>>>> higher expected returns
the least risky investment answer >>>>>> treasury bills
the riskiest investment answer >>>>>> small company common stocks
price/return volatility is a way to measure? answer >>>>>> risk
a rational investor requires a higher expected return to accept... answer >>>>>>
additional risk
model that describes the tradeoff between risk and return... answer >>>>>> capital
asset pricing model (CAPM)
,FIN 301
CAPM equation answer >>>>>> = risk free rate + [Beta * (Market Risk Premium -
Return on Market)]
rate of return equation answer >>>>>> = (cash pmt. + change in price) / price paid
a capital gain/loss is realized when... answer >>>>>> the asset is sold
risk is measured by... answer >>>>>> the possible range of returns around an
expected return, known as the standard deviation
a greater the standard deviation of a stock means... answer >>>>>> more
fluctuations and greater risk
simple averages can be misleading when... answer >>>>>> analyzing returns
_______ or _______ averages are more representative of actual investment
performance answer >>>>>> compound or geometric
simple averages are misleading because... answer >>>>>> they can hide poor
performances
relationship between beta and return is... answer >>>>>> positive
stock return estimate equation answer >>>>>> = market return * beta
beta is a measure of... answer >>>>>> market magnification
, FIN 301
systematic risk is measured by... answer >>>>>> beta
the market related risk that you are paid to take is... answer >>>>>> systematic
the risk that cannot be diversified away is... answer >>>>>> systematic
the firm specific risk that affects the return of that firm or industry only is... answer
>>>>>> unsystematic
the risk that can be diversified away is... answer >>>>>> unsystematic
in a diversified portfolio, which risk averages out to be 0? answer >>>>>>
unsystematic
which risk are you not paid to take? answer >>>>>> unsystematic
alpha is a measure of... answer >>>>>> performance
alpha equation answer >>>>>> = observed return of asset - expected return of asset
a positive alpha is... answer >>>>>> good
a negative alpha is... answer >>>>>> bad
