D076 Module 6 ASSESSMENT TEST

return the money gained or lost on an investment over a certain period of time. holding period return the return over the entire period that an investor owns a financial security. expected return a hypothesized estimate of future prices or returns under different scenarios based on expectational data. real return found by subtracting the inflation rate, and are useful for comparing returns over different time periods as inflation rates vary over time. Which statement correctly contextualizes what a return is? A return is the gain or loss on an investment over some period of time. What is an expected return? A hypothesized estimate of future returns under different scenarios based on expectational data In 1980, the inflation rate was 5% and a particular investment gave a return of 15%. In 2010, the inflation rate was 5% and the same investment gave a return of 12%. In which year did stockholders gain greater purchasing power and why? 1980 because the real rate was higher than in 2010 risk the possibility that the realized or actual return will differ from the expected return. standard deviation a measure of dispersion of possible outcomes about the mean. Therefore, the greater this is, the greater the uncertainty and the greater the total risk of the security. Market Risk or Systematic Risk also known as nondiversifiable risk. risk that is inherent in the economy as a whole and cannot be diversified away. firm-specific risk or nonsystematic risk