Exam 10: Investment Basics: Understanding Risk and Return

Financial risk is associated with business firms that borrow heavily to finance their operations.

Dollar cost averaging consist of investing equal dollar amounts at regular intervals.

Over the period 2000 through 2006,the average annual return on Treasury bills was about 3%.

A stock's alpha value = expected return minus required return.

Business risk refers to problems encountered by simply going into business.

DRIPs refers to a technique for timing the market.

There is strong evidence that financial professionals can successfully engage in market timing.

Which method of investing probably involves the most risk?

The returns on Asset A are strongly,positively correlated with Asset B's returns;thus,holding the two assets together will

To reduce risk,you should diversify among asset groups.

A stock's beta is positively related the market risk premium.

Evidence shows that the return on U.S.Treasury bills was negative.

A stock's required return depends upon

Generally,the longer an asset is held,the more likely we are to receive its expected return.

Which of the following changes would not lead to an increase in a security's required return? An increase in

A dividend reinvestment plan can be a routine way to invest in a stock.

The market risk premium is the expected return for accepting overall market risk.

All other factors being the same,firms that are more dependent on stock issues for raising financial capital have greater financial risk.

An examination of historical returns on financial assets over the period 1970-2006 indicates the following risk premiums

An example of a zero-beta asset is