ESSENTIALS OF INVESTMENTS CH. 1 – 5 QUESTIONS WITH CORRECT ANSWERS

ESSENTIALS OF INVESTMENTS CH. 1 –
5 QUESTIONS WITH CORRECT
ANSWERS 2026-2027
Holding-period return - correct answer-rate of return over a given investment period



dollar weighted average return - correct answer-the internal rate of return on an investment



scenario analysis - correct answer-
process of devising a list of possible economic scenarios and specifying the likelihood of each one, as
well as the HPR that will be realized in each case.



probability distribution - correct answer-list of possible outcomes with associated probabilities



expected return - correct answer-the mean value of the distribution of HPR



variance - correct answer-the expected value of the squared deviation from the mean



value at risk (VaR) - correct answer-measure of downside risk.



kurtosis - correct answer-measure of the fatness of the tails of a probability distribution.



skew - correct answer-measure of the asymmetry of a probability distribution



risk-free-rate - correct answer-the rate of return that can be earned with certainty



risk premium - correct answer-an expected return in excess of that on risk-free securities



excess return - correct answer-rate of return in excess of the risk-free-rate

, risk aversion - correct answer-reluctance to accept risk
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sharpe measure - correct answer-ratio of portfolio risk premium to standard deviation
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mean-variance analysis - correct answer-ranking portfolios by their sharpe measures
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inflation rate - correct answer-the rate at which prices are rising
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nominal interest rate - correct answer-the interest rate in terms of nominal dollars
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real interest rate - correct answer-the excess of the interest rate over the inflation rate.
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complete portfolio - correct answer-the entire portfolio including risky and risk-free assets
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Primary Market - correct answer-Market for new issues of securities.
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Secondary Market - correct answer-Market for already-existing securities.
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Initial Public Offering (IPO) - correct answer-First sale of stock by a formerly private company.
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Underwriters - correct answer- X2 X2 X2




Underwriters purchase securities from the issuing company and resell them.
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Prospectus - correct answer-A description of the firm and the security it is issuing.
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Private Placement - correct answer-
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Primary offerings in which shares are sold directly to a small group of institutional or wealthy investors
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