BUSINESS AND FINANCE

Estimating Risk and Return

 

BA 540 Chapter 10 – Estimating Risk and Return

BA/540 Chapter 10 – Estimating Risk and Return

BA-540 Chapter 10 – Estimating Risk and Return

BA540 Chapter 10 – Estimating Risk and Return

BA 540 Chapter 10 – Estimating Risk and Return
Multiple Choice Questions
1. Which of the following is a true statement?
A. The risk and return that a firm experienced in the past is also the risk level for its future.
B. Firms can quite possibly change their stocks’ risk level by substantially changing their business.
C. If a firm takes on riskier new projects over time, the firm itself will become less risky.
D. If a firm takes on less risky new projects over time, the firm itself will become more risky.

 

2. This is the average of the possible returns weighted by the likelihood of those returns occurring.
A. efficient return
B. expected return
C. market return
D. required return

 

3. The set of probabilities for all possible occurrences.
A. probability
B. probability distribution
C. stock market bubble
D. market probabilities

 

4. This is typically considered the return on U.S. government bonds and bills and equals the real interest plus the expected inflation premium.
A. required return
B. risk-free rate
C. risk premium
D. market risk premium

 

5. This is the reward investors require for taking risk.
A. required return
B. risk-free rate
C. risk premium
D. market risk premium

 

6. This is the reward for taking systematic stock market risk.
A. required return
B. risk-free rate
C. risk premium
D. market risk premium

 

7. This model includes an equation that relates a stock’s required return to an appropriate risk premium:
A. asset pricing
B. behavioral finance
C. beta
D. efficient markets

 

8. The asset pricing theory based on a beta, a measure of market risk.
A. Behavioral Asset Pricing Model
B. Capital Asset Pricing Model
C. Efficient Markets Asset Pricing Model
D. Efficient Market Hypothesis

 

9. In theory, this is a combination of securities that places the portfolio on the efficient frontier and on a line tangent from the risk-free rate.
A. efficient market
B. market portfolio
C. probability distribution
D. stock market bubble

 

10. The use of debt to increase an investment position.
A. behavioral finance
B. financial leverage
C. probability

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