ASU FIN 300 REVIEW ALL 2026 QUESTIONS AND
ANSWERS SURE A+
✔✔expected return - ✔✔-Reflection of the possible returns from an investment
- Weighted by probability of each possible return
- Reflects investors expectations about future outcomes
- Weighted average of the possible returns from an investment
✔✔Expected Return equation - ✔✔E(R asset)= SUM(pi x Ri) = (p1 x R1) + (p2 + R2) +
....
✔✔Variance - ✔✔-A measure of the uncertainty associated with an outcome
- Standard deviation squared
✔✔Variance equation - ✔✔Probability of event occurring x (outcome if event occurs -
expected return)^2
✔✔standard deviation - ✔✔the square root of the variance
✔✔arithmetic average return - ✔✔Return earned in an average period
- Add returns each year and divide by number of years
✔✔Geometric (compounded) average return - ✔✔average compounded return earned
by an investor
- R geometric average = [(1+R1) x (1 + R2) x ... x (1 + Rn)]^(1/n) - 1
✔✔Two parts of Probability Analysis - ✔✔Coefficient of Variation (CV) and Sharp Ratio
✔✔Coefficient of variation(CV) - ✔✔a measure of the risk associated with an investment
for each 1
percent of expected return
, CVi = standard deviation Ri/E(Ri)
CV*I = standard deviation Ri/(E(Ri) - Rrf)
✔✔Sharp ratio - ✔✔measure of the return per unit of risk for an investment
S = (E(Ri) - Rrf)/standard deviation Ri
✔✔systematic/ nondiversifiable risk - ✔✔risk that cannot be eliminated through
diversification
-Total risk on portfolio decreases as the number of assets increase
-Objective of diversification is to eliminate variation in returns that is unique to individual
assets
✔✔unsystematic/ diversifiable risk - ✔✔risk that can be eliminated through
diversification
✔✔Beta - ✔✔Line of best fit
- Measure of systematic/nondiversifiable risk
-Change in stock return/change in market return
- Beta = 1: same systematic risk as the market
- Beta > 1: more systematic risk than the market
- Beta < 1: less systematic risk than the market
- Beta = 0: no systematic risk
✔✔Capital asset pricing model - ✔✔model that describes the relation between risk and
expected return
✔✔Capital asset pricing model equation - ✔✔E(Ri) = Rrf + Beta i [E(Rm)-Rrf]
Need to know:
- Risk-free rate
-Beta
Market risk premium or expected return on market
-Market risk premium = difference between expected return on the market and
risk-free rate
✔✔Bond valuation - ✔✔-How bonds are priced
✔✔Steps to value assets - ✔✔1. Estimate the expected future cash flows
2. Determine the required rate of return, or discount rate
3. Compute the present value of the future cash flows
✔✔A bond's yield to maturity - ✔✔= market interest rate
ANSWERS SURE A+
✔✔expected return - ✔✔-Reflection of the possible returns from an investment
- Weighted by probability of each possible return
- Reflects investors expectations about future outcomes
- Weighted average of the possible returns from an investment
✔✔Expected Return equation - ✔✔E(R asset)= SUM(pi x Ri) = (p1 x R1) + (p2 + R2) +
....
✔✔Variance - ✔✔-A measure of the uncertainty associated with an outcome
- Standard deviation squared
✔✔Variance equation - ✔✔Probability of event occurring x (outcome if event occurs -
expected return)^2
✔✔standard deviation - ✔✔the square root of the variance
✔✔arithmetic average return - ✔✔Return earned in an average period
- Add returns each year and divide by number of years
✔✔Geometric (compounded) average return - ✔✔average compounded return earned
by an investor
- R geometric average = [(1+R1) x (1 + R2) x ... x (1 + Rn)]^(1/n) - 1
✔✔Two parts of Probability Analysis - ✔✔Coefficient of Variation (CV) and Sharp Ratio
✔✔Coefficient of variation(CV) - ✔✔a measure of the risk associated with an investment
for each 1
percent of expected return
, CVi = standard deviation Ri/E(Ri)
CV*I = standard deviation Ri/(E(Ri) - Rrf)
✔✔Sharp ratio - ✔✔measure of the return per unit of risk for an investment
S = (E(Ri) - Rrf)/standard deviation Ri
✔✔systematic/ nondiversifiable risk - ✔✔risk that cannot be eliminated through
diversification
-Total risk on portfolio decreases as the number of assets increase
-Objective of diversification is to eliminate variation in returns that is unique to individual
assets
✔✔unsystematic/ diversifiable risk - ✔✔risk that can be eliminated through
diversification
✔✔Beta - ✔✔Line of best fit
- Measure of systematic/nondiversifiable risk
-Change in stock return/change in market return
- Beta = 1: same systematic risk as the market
- Beta > 1: more systematic risk than the market
- Beta < 1: less systematic risk than the market
- Beta = 0: no systematic risk
✔✔Capital asset pricing model - ✔✔model that describes the relation between risk and
expected return
✔✔Capital asset pricing model equation - ✔✔E(Ri) = Rrf + Beta i [E(Rm)-Rrf]
Need to know:
- Risk-free rate
-Beta
Market risk premium or expected return on market
-Market risk premium = difference between expected return on the market and
risk-free rate
✔✔Bond valuation - ✔✔-How bonds are priced
✔✔Steps to value assets - ✔✔1. Estimate the expected future cash flows
2. Determine the required rate of return, or discount rate
3. Compute the present value of the future cash flows
✔✔A bond's yield to maturity - ✔✔= market interest rate
