AAMS MODULE 2 EXAM QUESTIONS AND
ANSWERS
Total Risk - Correct Answers -Comprised of Systematic Risk & Unsystematic Risk
Standard deviation - Correct Answers -Variability of an investment's returns around its
average, or mean, return. Measures total risk (both systematic and unsystematic risk)
Beta - Correct Answers -Measures volatility, systematic risk, and relative risk
Systematic Risk - Correct Answers -Also called non diversifiable risk. Includes
purchasing power risk, reinvestment risk, interest rate risk, market risk, and exchange
rate risk
Purchasing power (inflation) risk - Correct Answers -Risk of one's purchasing power
decreasing as a result of inflation
correlation coefficient - Correct Answers -measures the degree to which an investment's
return varies from (or moves in concert with) another investment's return
Dollar cost averaging - Correct Answers -person invests a set dollar amount on a
regular, ongoing basis
Value averaging - Correct Answers -a person invests regularly and periodically an
amount that will increase the account value by a set amount
Reinvestment risk - Correct Answers -Risk that market interest rates have decreased at
the time payments from an investment received. Investor is forced to reinvest his or her
payment amount at a time when rates are not as favorable as they may have been
previously.
Market Risk - Correct Answers -Stems from factors independent of any particular
security. Includes political events, broad economic and social changes, and the mood of
the investing public.
Exchange rate risk - Correct Answers -Risk of having both their principal and return
diminished by changes in the relative values of US and foreign currencies.
Unsystematic Risk - Correct Answers -Risk directly associated with particular securities
and risk involved can be reduced through diversification.
ANSWERS
Total Risk - Correct Answers -Comprised of Systematic Risk & Unsystematic Risk
Standard deviation - Correct Answers -Variability of an investment's returns around its
average, or mean, return. Measures total risk (both systematic and unsystematic risk)
Beta - Correct Answers -Measures volatility, systematic risk, and relative risk
Systematic Risk - Correct Answers -Also called non diversifiable risk. Includes
purchasing power risk, reinvestment risk, interest rate risk, market risk, and exchange
rate risk
Purchasing power (inflation) risk - Correct Answers -Risk of one's purchasing power
decreasing as a result of inflation
correlation coefficient - Correct Answers -measures the degree to which an investment's
return varies from (or moves in concert with) another investment's return
Dollar cost averaging - Correct Answers -person invests a set dollar amount on a
regular, ongoing basis
Value averaging - Correct Answers -a person invests regularly and periodically an
amount that will increase the account value by a set amount
Reinvestment risk - Correct Answers -Risk that market interest rates have decreased at
the time payments from an investment received. Investor is forced to reinvest his or her
payment amount at a time when rates are not as favorable as they may have been
previously.
Market Risk - Correct Answers -Stems from factors independent of any particular
security. Includes political events, broad economic and social changes, and the mood of
the investing public.
Exchange rate risk - Correct Answers -Risk of having both their principal and return
diminished by changes in the relative values of US and foreign currencies.
Unsystematic Risk - Correct Answers -Risk directly associated with particular securities
and risk involved can be reduced through diversification.
