DPB50113_TOPIC 2

What is RETURN

Classification of return

• Realize return

• Required return

• Expected return

• All above answers

The expected return on an investment is .......

• less than the required return

• equal to the required return

• calculated by taking the mean of the distribution of possible returns

• equivalent to the actual return

What is RISK

A risk taker is a person who is not willing to take high risk

• TRUE

• FALSE

The expected return on an investment is equal to the realized return

• TRUE

• FALSE

The minimum rate required by investors in order to invest in a security is referred to as the .......

• risk-free rate

• risk premium

• stock's beta

• required rate of return

Unsystematic risks ........

• are forces that affect all investment vehicles

• are unavoidable

• cannot be eliminated or reduced

• result from random firm-specific events

If one project has a higher standard deviation than another,

• it has a greater risk

• it has more possible outcomes

• it may be risker, but this can only be determined by the coefficient of variation

• it has a higher expected return

Investors can eliminate _____________ through diversification

• total risk

• unsystematic risk only

• systematic risk only

• uncertainty