FIN 300 (Test #2) Questions and Correct Answers

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FIN 300 (Test #2) Questions and Correct
Answers
The expected return on an investment is:

-equal to the required return

- less than the required return

- equivalent to the actual return

- the mean of the distribution of possible returns— Ans: the mean
of the distribution of possible returns

A good measure of an investor's risk exposure if she/he only holds
a single asset in her portfolio is:

- the standard deviation of possible returns on the asset

-the expected value of the asset's returns

- the correlation coefficient with the market portfolio

-the normal probability distribution function— Ans: the standard
deviation of possible returns on the asset

Standard deviation is a:




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-numerical indicator of how widely dispersed possible values are
distributed around the mean

-numerical indicator of how widely dispersed possible values are
distributed around the coefficient of variation

-numerical indicator of how widely dispersed possible values are
distributed around the correlation coefficient

- measure of the relative risk of one asset compared with
another— Ans: numerical indicator of how widely dispersed
possible values are distributed around the mean

In terms of risk, labor union disputes, entry of a new competitor,
and embezzlement by management are all examples of factors
affecting:

-diversifiable risk

-market risk

-systematic risk

-company specific risk that cannot be diversified away— Ans:
diversifiable risk




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