FIN 470 EXAM 1 QUESTIONS WITH ACCURATE ANSWERS
____% of events should be <2 SD from the mean correct answer 95%
____% of events should be <3 SD from the mean correct answer 99.7%
"independent" means ___ correlation correct answer 0
NONE
NADA
a company can be thought of as a correct answer portfolio of
projects/investments
airplane manufacturer correct answer high uncertainty, high risk
an investment whose future value is known with certainty and whose return is
the risk free rate of return correct answer risk free asset
as you add mroe independent sources of risk, the SD correct answer becomes
smaller
can uncertainty be hedged? correct answer usually cannot be hedged with
financial products, but doesn't mean it can't be hedged
common high risk correct answer price of inputs or outputs vary a lot (gold mines
and gold prices, airlines and oil prices)
, common high uncertainty correct answer -potential for new competitors
-new regulations
-new technology (taxis vs. uber)
differences between risk and uncertainty correct answer risk -can be quantified,
probabilities
uncertainty- cannot be quantified, no probabilities
diversification does NOT remove correct answer systematic risk
diversification reduces ___ risk correct answer idiosyncratic risk
example of idiosyncratic risk correct answer a car accident
example of risk correct answer you need to pick a red ball from the bucket and
you know there's 50% red and 50% black
example of systematic risk correct answer COVID, 9/11
example of uncertainty correct answer you need to pick a red ball from the
bucket but you don't know how many red or how many black
Expected value is AKA correct answer (probabiltiy)(payoff) + (probability)
(payoff)...and so on
expected value is AKA correct answer mean
____% of events should be <2 SD from the mean correct answer 95%
____% of events should be <3 SD from the mean correct answer 99.7%
"independent" means ___ correlation correct answer 0
NONE
NADA
a company can be thought of as a correct answer portfolio of
projects/investments
airplane manufacturer correct answer high uncertainty, high risk
an investment whose future value is known with certainty and whose return is
the risk free rate of return correct answer risk free asset
as you add mroe independent sources of risk, the SD correct answer becomes
smaller
can uncertainty be hedged? correct answer usually cannot be hedged with
financial products, but doesn't mean it can't be hedged
common high risk correct answer price of inputs or outputs vary a lot (gold mines
and gold prices, airlines and oil prices)
, common high uncertainty correct answer -potential for new competitors
-new regulations
-new technology (taxis vs. uber)
differences between risk and uncertainty correct answer risk -can be quantified,
probabilities
uncertainty- cannot be quantified, no probabilities
diversification does NOT remove correct answer systematic risk
diversification reduces ___ risk correct answer idiosyncratic risk
example of idiosyncratic risk correct answer a car accident
example of risk correct answer you need to pick a red ball from the bucket and
you know there's 50% red and 50% black
example of systematic risk correct answer COVID, 9/11
example of uncertainty correct answer you need to pick a red ball from the
bucket but you don't know how many red or how many black
Expected value is AKA correct answer (probabiltiy)(payoff) + (probability)
(payoff)...and so on
expected value is AKA correct answer mean
