WorksheetsTest - Risk and Return (single asset)
Total questions: 31
Worksheet time: 55mins
A risk taker is a person who is not willing to take larger risk.
Standard deviation is a relative measure of risk.
Coefficient of variation is a relative measure of risk per unit of expected return.
A risky investment would usually has higher standard deviation.
Risk is the chance that the actual return deviate from the expected return.
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%
Which is the riskiest investment?
Investment A: ER = 22%; SD = 10%
Investment B: ER = 24%; SD = 12%
Investment C: ER = 21%; SD = 14%
Investment D: ER = 20%; SD = 11%
Probability = 15%; Return = -5%
Probability = 20%; Return = 10%
Probability = 30%; Return = 15%
Probability = 35%; Return = 25%
What is the expected rate of return on the investment?
15.4%
14.5%
15.5%
16%
Project A: SD = 6%; ER = 10%
Project B: SD = 10%; ER = 10%
Project C: SD = 20%; ER = 30%
Project D: SD = 8%; ER = 14%
Which project would a risk averse investor choose?
Project A
Project B
Project C
Project D
The expected return on an investment is ...
less than required return.
equal to required return.
calculated by taking the mean of the distribution of possible returns.
equivalent to the actual return.
Risk is used interchangeably with ......... to explain the variability of returns.
expectation
risk averse
uncertainty
diversification
......... refers to the portion of an asset's risk that attributes to firm's specific random events, for example strikes and robberies, that can be eliminated by diversification.
Market risk
General risk
Unique risk
Non-diversifiable risk
Event 1: BNM announced an increase in interest rate resulted an increase of 1% company's cost of financing.
Event 2: A fire caused by an accident at one of the company's store resulted in a huge loss for the company.
Determine the type of risk that can be associated to each of the events.
Unsystematic risk and Unsystematic risk
Unsystematic risk and Systematic risk
Systematic risk and Systematic risk
Systematic risk and Unsystematic risk
If Soraya holds a single asset in his investment portfolio, his risk exposure would be best measured by the ........
coefficient of variation
normal distribution of returns
standard deviation of returns
None of the above
Which of the following statements about a risk-averse investor is true?
Choose an investment with a high standard deviation but a low expected return.
Choose an investment with a low standard deviation and a high expected return.
Choose an investment with a high expected return and a high standard deviation.
Choose an investment with a low standard deviation and a low expected return.
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
Investors can eliminate what type of risk by diversifying?
Systematic risk
Unsystematic risk
Beta risk
Total risk
Below are all types of return except:
Actual return
Expected return
Possible return
Required return
From the probability distribution provided, the expected return of the asset is closest to:
9%
6.7%
10%
20%
Consider the following 4 assets. If you have to select only one, which one would you pick if you are risk-averse?
D
A
B
C
If employees of a company go on strike, this is an example of which types of investment risk?
company risk
industry risk
political risk
inflation risk
Plunging oil prices is an example of which of the following types of investment risk?
company risk
industry risk
political risk
inflation risk
Investment A has an expected return of 15% per year, while Investment B has an expected return of 12% per year. A rational investor will choose
Investment A because of the higher expected return.
Investment B because a lower return means lower risk.
Investment A if A and B are of equal risk.
Investment A only if the standard deviation of returns for A is higher than the standard deviation of returns for B.
You are considering investing in Ford Motor Company. Which of the following are examples of diversifiable risk?
I. Risk resulting from possibility of a stock market crash.
II. Risk resulting from uncertainty regarding a possible strike against Ford.
III. Risk resulting from an expensive recall of a Ford product.
IV. Risk resulting from interest rates decreasing.
I only
I and IV
I, II, III, IV
II, III
The wider the dispersion of returns on a stock, the:
lower the expected rate of return
higher the standard deviation
lower the real rate of return
lower the variance
A stock is expected to return 11% in a normal economy, 19% if the economy booms, and lose 8% if the economy moves into a recessionary period. Economists predict a 65% chance of a normal economy, a 25% chance of a boom, and a 10% chance of a recession. What is the expected return on the stock?
11.10%
12.06%
11.98%
11.23%
define the term "return"
profit from sales
capital gain
the reward of investing
Relationship between risk and return mean to?
increase return of investment
minimize risk in investment
study the effect of both element on each other
Which of these is not considered low risk?
Checking account
Commercial Paper
Savings Account
CD
Look at the PICTURE for help!
Big Bill Bobkins received $12,800.00. He invested $10,000. What was his Gain or Loss?
$2800.00
-$2800.00
-$280.00
$280.00
