Exam 8: Risk and Return

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

New investments must be considered in light of their impact on the risk and return of the portfolio of assets because the risk of any single proposed asset investment is not independent of other assets.

Nico bought 100 shares of Cisco Systems stock for $24.00 per share on January 1, 2002. He received a dividend of $2.00 per share at the end of 2002 and $3.00 per share at the end of 2003. At the end of 2004, Nico collected a dividend of $4.00 per share and sold his stock for $18.00 per share. What was Nico's realized holding period return? What was Nico's compound annual rate of return?

The steeper the slope of the security market line, the greater the degree of risk aversion.

The security market line is not stable over time and shifts in it can result in a change in required return.

In general, the lower (less positive and more negative) the correlation between asset returns,

If a person requires greater return when risk increases, that person is said to be

On average, during the past 75 years, the return on U.S. Treasury bills has exceeded the inflation rate.

On average, during the past 75 years, the inflation rate has exceeded the return on U.S. Treasury bills.

A normal probability distribution is a symmetrical distribution whose shape resembles a bell-shaped curve.

Strikes, lawsuits, regulatory actions, and increased competition are all examples of

Table 8.2 You are going to invest $20,000 in a portfolio consisting of assets X, Y, and Z, as follows: -Nicole holds three stocks in her portfolio: A, B, and C. The portfolio beta is 1.40. Stock A comprises 15 percent of the dollar value of her holdings and has a beta of 1.0. If Nicole sells all of her investment in A and invests the proceeds in the risk-free asset, her new portfolio beta will be

Given the returns of two stocks J and K in the table below over the next 4 years. Find the expected return and standard deviation of holding a portfolio of 40% of stock J and 60% in stock K over the next 4 years:

Over long periods, returns from internationally diversified portfolios tend to be superior to those yielded by purely domestic ones. Over any single short or intermediate period, however, international diversification can yield sub par returnsparticularly during periods when the dollar is appreciating in value relative to other currencies.

The relevant portion of an asset's risk attributable to market factors that affect all firms is called

Interest rate risk is the chance that changes in interest rates will adversely affect the value of an investment; most investments decline in value when the interest rates rise and increase in value when interest rates fall.

The larger the difference between an asset's worst outcome from its best outcome, the higher the risk of the asset.

A beta coefficient of -1 represents an asset that

Total security risk is the sum of a security's nondiversifiable, diversifiable, systematic, and unsystematic risk.

Akai has a portfolio of three assets. Find the expected rate of return for the portfolio assuming he invests 50 percent of its money in asset A with 10 percent rate of return, 30 percent in asset B with a rate of return of 20 percent, and the rest in asset C with 30 percent rate of return.