FIN 3403 UCF Exam 2 Terms Questions With
Correct Answers
Compound Interest - CORRECT ANSWER✔✔-The situation in which interest is
| | | | | | | | | |
paid on an investment during the first period is added to the principal. During the
| | | | | | | | | | | | | |
second period interest is earned on the original principal plus the interest earned
| | | | | | | | | | | | |
during the first period.
| | | |
Annuity - CORRECT ANSWER✔✔-A series of equal dollar payments made for a
| | | | | | | | | | | |
specified number of years. | | |
Annuity Due - CORRECT ANSWER✔✔-An annuity in which the payments occur at
| | | | | | | | | | | |
the BEGINNING of each period.
| | | |
Perpetuity - CORRECT ANSWER✔✔-An annuity with an infinite life.
| | | | | | | |
Amortized Loan - CORRECT ANSWER✔✔-A loan that is paid off in equal periodic
| | | | | | | | | | | | |
payments.
Risk - CORRECT ANSWER✔✔-Potential variability in future cash flows.
| | | | | | | |
Standard Deviation - CORRECT ANSWER✔✔-A statistical measure of the spread of
| | | | | | | | | |
a probability distribution calculated by squaring the difference between each
| | | | | | | | | | |
outcome and its expected value, weighting each value by its probability, summing
| | | | | | | | | | |
overall possible outcomes, and taking the square root of this sum.
| | | | | | | | | | |
, COMPANY- Unique Risk (or DIVERSIFIABLE Risk) - CORRECT ANSWER✔✔-
| | | | | | | |
UNSYSTEMATIC Risk- The risk related to an investment return that can be| | | | | | | | | | | |
eliminated through diversification. (REMEMBER DUC)
| | | |
MARKET Risk (or NON Diversifiable Risk) - CORRECT ANSWER✔✔-SYSTEMATIC
| | | | | | | | |
Risk- The risk related to an investment return that cannot be eliminated through
| | | | | | | | | | | | |
diversification.
Diversification - CORRECT ANSWER✔✔-Holding a variety of securities to reduce
| | | | | | | | | |
the overall risk of a portfolio.
| | | | |
Holding Period Return - CORRECT ANSWER✔✔-The return an investor would
| | | | | | | | | |
receive from holding a security for a designated period of time.
| | | | | | | | | |
Beta - CORRECT ANSWER✔✔-The relationship between an investment's returns
| | | | | | | | |
and the market's returns. This is a measure of the investment's non-diversifiable
| | | | | | | | | | | |
risk.
Portfolio Beta - CORRECT ANSWER✔✔-The relationship between a portfolio's
| | | | | | | | |
reutrns and the market's returns. This is a measure of the portfolio's non-
| | | | | | | | | | | |
diversifiable risk. |
Asset Allocation - CORRECT ANSWER✔✔-Identifying and selecting the asset
| | | | | | | | |
classes appropriate for a specific investment portfolio and determining the
| | | | | | | | | |
proportions of those assets within the portfolio.
| | | | | |
Correct Answers
Compound Interest - CORRECT ANSWER✔✔-The situation in which interest is
| | | | | | | | | |
paid on an investment during the first period is added to the principal. During the
| | | | | | | | | | | | | |
second period interest is earned on the original principal plus the interest earned
| | | | | | | | | | | | |
during the first period.
| | | |
Annuity - CORRECT ANSWER✔✔-A series of equal dollar payments made for a
| | | | | | | | | | | |
specified number of years. | | |
Annuity Due - CORRECT ANSWER✔✔-An annuity in which the payments occur at
| | | | | | | | | | | |
the BEGINNING of each period.
| | | |
Perpetuity - CORRECT ANSWER✔✔-An annuity with an infinite life.
| | | | | | | |
Amortized Loan - CORRECT ANSWER✔✔-A loan that is paid off in equal periodic
| | | | | | | | | | | | |
payments.
Risk - CORRECT ANSWER✔✔-Potential variability in future cash flows.
| | | | | | | |
Standard Deviation - CORRECT ANSWER✔✔-A statistical measure of the spread of
| | | | | | | | | |
a probability distribution calculated by squaring the difference between each
| | | | | | | | | | |
outcome and its expected value, weighting each value by its probability, summing
| | | | | | | | | | |
overall possible outcomes, and taking the square root of this sum.
| | | | | | | | | | |
, COMPANY- Unique Risk (or DIVERSIFIABLE Risk) - CORRECT ANSWER✔✔-
| | | | | | | |
UNSYSTEMATIC Risk- The risk related to an investment return that can be| | | | | | | | | | | |
eliminated through diversification. (REMEMBER DUC)
| | | |
MARKET Risk (or NON Diversifiable Risk) - CORRECT ANSWER✔✔-SYSTEMATIC
| | | | | | | | |
Risk- The risk related to an investment return that cannot be eliminated through
| | | | | | | | | | | | |
diversification.
Diversification - CORRECT ANSWER✔✔-Holding a variety of securities to reduce
| | | | | | | | | |
the overall risk of a portfolio.
| | | | |
Holding Period Return - CORRECT ANSWER✔✔-The return an investor would
| | | | | | | | | |
receive from holding a security for a designated period of time.
| | | | | | | | | |
Beta - CORRECT ANSWER✔✔-The relationship between an investment's returns
| | | | | | | | |
and the market's returns. This is a measure of the investment's non-diversifiable
| | | | | | | | | | | |
risk.
Portfolio Beta - CORRECT ANSWER✔✔-The relationship between a portfolio's
| | | | | | | | |
reutrns and the market's returns. This is a measure of the portfolio's non-
| | | | | | | | | | | |
diversifiable risk. |
Asset Allocation - CORRECT ANSWER✔✔-Identifying and selecting the asset
| | | | | | | | |
classes appropriate for a specific investment portfolio and determining the
| | | | | | | | | |
proportions of those assets within the portfolio.
| | | | | |
