BA 323 NIELANDER EXAM ONE CHAPTERS
1 3 16 17 END OF COURSE STUDY GUIDE
LATEST UPDATED ACTUAL TESTED
QUESTIONS AND CORRECT ANSWERS
⩥ Return.
Answer: The percent gain or loss on an investment.
⩥ Expected return.
Answer: The weighted average return, using probabilities as weights.
⩥ Expected return formula.
Answer: E(R) = p1R1 + p2R2 + ... + pnRn.
⩥ When to use expected return.
Answer: Use when a problem gives probabilities and possible returns.
⩥ Expected return with two outcomes.
Answer: Multiply each return by its probability, then add the results.
⩥ Variance.
,Answer: The probability-weighted average of squared deviations from
expected return.
⩥ Standard deviation.
Answer: The square root of variance; measures total risk or volatility.
⩥ Standard deviation formula.
Answer: σ = sqrt[Σ p(R - E(R))^2].
⩥ Standard deviation steps.
Answer: Find expected return, subtract expected return from each
possible return, square each deviation, multiply by probability, add, then
square root.
⩥ High standard deviation.
Answer: Means returns are more spread out and the investment is riskier.
⩥ Systematic risk.
Answer: Market-wide risk that affects many assets and cannot be
diversified away.
⩥ Unsystematic risk.
, Answer: Company-specific risk that can be reduced or eliminated
through diversification.
⩥ Market risk.
Answer: Another name for systematic risk.
⩥ Specific risk.
Answer: Another name for unsystematic risk.
⩥ Examples of systematic risk.
Answer: Recession, inflation, interest rates, financial crisis, war, energy
crisis, COVID.
⩥ Examples of unsystematic risk.
Answer: Product recall, accounting scandal, bad management, changing
customer preferences.
⩥ Diversification.
Answer: Holding multiple assets to reduce portfolio risk.
⩥ Diversification benefit.
Answer: Adding stocks can reduce unsystematic risk without necessarily
lowering expected return.
1 3 16 17 END OF COURSE STUDY GUIDE
LATEST UPDATED ACTUAL TESTED
QUESTIONS AND CORRECT ANSWERS
⩥ Return.
Answer: The percent gain or loss on an investment.
⩥ Expected return.
Answer: The weighted average return, using probabilities as weights.
⩥ Expected return formula.
Answer: E(R) = p1R1 + p2R2 + ... + pnRn.
⩥ When to use expected return.
Answer: Use when a problem gives probabilities and possible returns.
⩥ Expected return with two outcomes.
Answer: Multiply each return by its probability, then add the results.
⩥ Variance.
,Answer: The probability-weighted average of squared deviations from
expected return.
⩥ Standard deviation.
Answer: The square root of variance; measures total risk or volatility.
⩥ Standard deviation formula.
Answer: σ = sqrt[Σ p(R - E(R))^2].
⩥ Standard deviation steps.
Answer: Find expected return, subtract expected return from each
possible return, square each deviation, multiply by probability, add, then
square root.
⩥ High standard deviation.
Answer: Means returns are more spread out and the investment is riskier.
⩥ Systematic risk.
Answer: Market-wide risk that affects many assets and cannot be
diversified away.
⩥ Unsystematic risk.
, Answer: Company-specific risk that can be reduced or eliminated
through diversification.
⩥ Market risk.
Answer: Another name for systematic risk.
⩥ Specific risk.
Answer: Another name for unsystematic risk.
⩥ Examples of systematic risk.
Answer: Recession, inflation, interest rates, financial crisis, war, energy
crisis, COVID.
⩥ Examples of unsystematic risk.
Answer: Product recall, accounting scandal, bad management, changing
customer preferences.
⩥ Diversification.
Answer: Holding multiple assets to reduce portfolio risk.
⩥ Diversification benefit.
Answer: Adding stocks can reduce unsystematic risk without necessarily
lowering expected return.
