FFM Final Exam Study Guide with Complete
Solutions 2025
securities - ANSWER assets suitable for investment, including stocks, bonds and mutual
funds
stocks - ANSWER shares of ownership in a corporation
bonds - ANSWER a debt instrument issued by an organization that promises repayment
at a specific time and the right to receive regular interest payments during the life of the
bond
portfolio - ANSWER collection of investments assembled to meet your investment goals
financial risk - ANSWER the possibility that the investment will fail to pay any return to
the investor.
total return - ANSWER the income an investment generates from a combination of
current income and capital gains
current income - ANSWER money received while you own an investment. It is usually
received on a regular basis as interest, rent, or dividends
interest - ANSWER charge for borrowing money; investors in bonds earn interest
dividend - ANSWER a portion of a company's earnings that the firm pays out to its
shareholders
, capital gain - ANSWER occurs only when you actually sell an investment that has
increased in value. (subtract the total amount paid for the investment from the higher
price at which it is sold)
capital losses - ANSWER o decrease in paper value of an initial investment; only realized
if sold
rate of return/yield - ANSWER the total return on an investment expressed as a
percentage of its price.
pure risk - ANSWER o exists when there is no potential for gain, only the possibility of
loss
speculative risk - ANSWER involves the potential for either gain or loss; equity
investments might do either
investment risk - ANSWER represents the uncertainty that the yield on an investment
will deviate from what is expected.
risk premium - ANSWER the difference between a riskier investment's expected return
and the totally safe return on the T-bill
risk aversion - ANSWER in investments, one who tends to dislike risk and is unable to
put money into investments that seem risky
random risk - ANSWER risk associated with owning only one investment of a particular
type that, by chance, may do very poorly in the future due to uncontrollable or random
factors that do not affect the rest of the market
Solutions 2025
securities - ANSWER assets suitable for investment, including stocks, bonds and mutual
funds
stocks - ANSWER shares of ownership in a corporation
bonds - ANSWER a debt instrument issued by an organization that promises repayment
at a specific time and the right to receive regular interest payments during the life of the
bond
portfolio - ANSWER collection of investments assembled to meet your investment goals
financial risk - ANSWER the possibility that the investment will fail to pay any return to
the investor.
total return - ANSWER the income an investment generates from a combination of
current income and capital gains
current income - ANSWER money received while you own an investment. It is usually
received on a regular basis as interest, rent, or dividends
interest - ANSWER charge for borrowing money; investors in bonds earn interest
dividend - ANSWER a portion of a company's earnings that the firm pays out to its
shareholders
, capital gain - ANSWER occurs only when you actually sell an investment that has
increased in value. (subtract the total amount paid for the investment from the higher
price at which it is sold)
capital losses - ANSWER o decrease in paper value of an initial investment; only realized
if sold
rate of return/yield - ANSWER the total return on an investment expressed as a
percentage of its price.
pure risk - ANSWER o exists when there is no potential for gain, only the possibility of
loss
speculative risk - ANSWER involves the potential for either gain or loss; equity
investments might do either
investment risk - ANSWER represents the uncertainty that the yield on an investment
will deviate from what is expected.
risk premium - ANSWER the difference between a riskier investment's expected return
and the totally safe return on the T-bill
risk aversion - ANSWER in investments, one who tends to dislike risk and is unable to
put money into investments that seem risky
random risk - ANSWER risk associated with owning only one investment of a particular
type that, by chance, may do very poorly in the future due to uncontrollable or random
factors that do not affect the rest of the market
