Portfolio Management

If a person's required return does not change when risk increases, that person is said to be

• risk-seeking.

• risk-neutral.

• risk-averse.

• risk-aware.

________ is the chance of loss or the variability of returns associated with a given asset.

• Return

• Value

• Risk

• Probability

The ________ of an asset is the change in value plus any cash distributions expressed as a percentage of the initial price or amount invested.

• Return

• Value

• Risk

• Probability

Risk aversion is the behavior exhibited by managers who require a (n)

• increase in return, for a given decrease in risk

• increase in return, for a given increase in risk

• decrease in return, for a given increase in risk.

• decrease in return, for a given decrease in risk.

Last year Mike bought 100 shares of Dallas Corporation common stock for $53 per share. During the year he received dividends of $1.45 per share. The stock is currently selling for $60 per share. What rate of return did Mike earn over the year?

• 11.7%

• 13.2%

• 14.1%

• 15.9%

Perry purchased 100 shares of Ferro, Inc. common stock for $25 per share one year ago. During the year, Ferro, Inc. paid cash dividends of $2 per share. The stock is currently selling for $30 per share. If Perry sells all of his shares of Ferro, Inc. today, what rate of return would he realize?

• 24%

• 26%

• 28%

• 30%

The ________ is the extent of an asset's risk. It is found by subtracting the pessimistic outcome from the optimistic outcome.

• return

• standard deviation

• probability distribution

• range

The ________ is a measure of relative dispersion used in comparing the risk of assets with differing expected returns.

• coefficient of variation

• chi square

• mean

• standard deviation

The ________ the coefficient of variation, the ________ the risk.

• lower; lower

• higher; lower

• lower; higher

• more stable; higher

The expected value, standard deviation of returns, and coefficient of variation for asset A are.....? (see below)

Asset A

^{Possible Outcomes: Pessimistic, Probability: 25%, Return: 5%}

^{Possible Outcomes: Most likely, Probability: 55%, Return: 10%}

^{Possible Outcomes: Optimistic, Probability: 20%, Return: 13%}

• 10 percent, 8 percent, and 1.25, respectively

• 9.33 percent, 8 percent, and 2.15, respectively

• 9.35 percent, 4.68 percent, and 2.00, respectively.

• 9.35 percent, 2.76 percent, and 0.295, respectively.