LOMA 291 Module 1 Lesson 3 exam |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
with correct answers |||\\\ |||\\\
investment - correct answer✔✔Any use of resources that is intended to generate a profit or
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positive return. |||\\\
risk-return tradeoff - correct answer✔✔The relationship between risk and return that affects
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virtually all business transactions. In general, all other factors being equal, the greater the risk
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associated with an investment, the greater the expected return. The lower the risk associated
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with an investment, the lower the expected return.
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rate of return - correct answer✔✔The earnings on an investment expressed as a percentage of
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the principal.
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risk-free rate - correct answer✔✔The return on a risk-free investment—the least risky
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investment opportunity available. See required return and risk premium. |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
risk premium - correct answer✔✔The component of investment return that compensates the
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investor for taking on the risk associated with a specific investment; the rate of return required
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in addition to the risk-free rate for the investor to make the investment.
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market risk - correct answer✔✔A risk of unexpected outcomes due to fluctuations in the
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market values in a given financial market. Also known as financial market risk.
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interest-rate risk - correct answer✔✔The risk that unpredictable movements or stagnation in |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
market interest rates will cause assets to lose value or liabilities to gain value.
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
with correct answers |||\\\ |||\\\
investment - correct answer✔✔Any use of resources that is intended to generate a profit or
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
positive return. |||\\\
risk-return tradeoff - correct answer✔✔The relationship between risk and return that affects
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
virtually all business transactions. In general, all other factors being equal, the greater the risk
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
associated with an investment, the greater the expected return. The lower the risk associated
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
with an investment, the lower the expected return.
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rate of return - correct answer✔✔The earnings on an investment expressed as a percentage of
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
the principal.
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risk-free rate - correct answer✔✔The return on a risk-free investment—the least risky
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
investment opportunity available. See required return and risk premium. |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
risk premium - correct answer✔✔The component of investment return that compensates the
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
investor for taking on the risk associated with a specific investment; the rate of return required
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
in addition to the risk-free rate for the investor to make the investment.
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
market risk - correct answer✔✔A risk of unexpected outcomes due to fluctuations in the
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
market values in a given financial market. Also known as financial market risk.
|||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
interest-rate risk - correct answer✔✔The risk that unpredictable movements or stagnation in |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\ |||\\\
market interest rates will cause assets to lose value or liabilities to gain value.
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