RISK AND RETURN

A risk taker is a person who is not willing to take large risk.

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Standard deviation is a relative measure of risk.

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Market risk can be reduced through diversification.

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Ahmad is considering investing in stocks. Which is the less risky investment?

• Stock A: SD = 10%; E(R) = 10%

• Stock B: SD = 6%; E(R) = 10%

• Stock C: SD = 8%; E(R) = 12%

• Stock D: SD = 20%; E(R) = 24%

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CCSS.HSS.MD.B.5B

Which of the following is an example of systematic risk?

• BHP Billiton posts lower than expected earnings.

• Woolworths announces record earnings.

• The government raises interest rates unexpectedly.

• Coca-Cola announces higher than expected earnings

Below are all types of return except:

• Actual return

• Expected return

• Possible return

• Required return

Risk and uncertainty are one and same.

• True

• False

The excess return required from a risky asset over that required from a risk-free asset is called the: 

• excess return.

• risk premium.

• average return.

• variance.

The standard deviation for a set of stock returns can be calculated as the

• positive square root of the average return.

• variance squared.

• positive square root of the variance.

• average return divided by N minus one, where N is the number of returns.

A capital gain occurs when: 

• the purchase price is less than the selling price.

• the selling price is less than the purchase price

• there is no dividend paid.

• there is no income component of return.