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Question;Corporate Finance, 2;Chapter 10;Capital Markets and the Pricing of Risk;10.1 A First Look at Risk and Return;1) Which of the;following investments offered the lowest overall return over the past eighty;years?;A) Small stocks;B) Treasury;Bills;C) S&P 500;D) Corporate;bonds;2) Which of the;following investments offered the highest overall return over the past eighty;years?;A) Treasury;Bills;B) S&P 500;C) Small stocks;D) Corporate;bonds;3) Which of the;following investments had the largest fluctuations overall return over the past;eighty years?;A) Small stocks;B) S&P 500;C) Corporate;bonds;D) Treasury;Bills;10.2 Common Measures of Risk and Return;1) Which of the;following statements is false?;A) The variance;increases with the magnitude of the deviations from the mean.;B) The variance;is the expected squared deviation from the mean.;C) Two common;measures of the risk of a probability distribution are its variance and;standard deviation.;D) If the return;is riskless and never deviates from its mean, the variance is equal to one.;2) Which of the;following statements is false?;A) When an;investment is risky, there are different returns it may earn.;B) In finance;the variance of a return is also referred to as its volatility.;C) The expected;or mean return is calculated as a weighted average of the possible returns;where the weights correspond to the probabilities.;D) The variance;is a measure of how "spread out" the distribution of the return is..;3) Which of the;following statements is false?;A) The standard;deviation is the square root of the variance.;B) Because;investors dislike only negative resolutions of uncertainty, alternative;measures that focus solely on downside risk have been developed, such as the;semi-variance and the expected tail loss.;C) While the;variance and the standard deviation are the most common measures of risk, they;do not differentiate between upside and downside risk.;D) While the;variance and the standard deviation both measure the variability of the returns;the variance is easier to interpret because it is in the same units as the;returns themselves.;4) Which of the;following equations is incorrect?;A);B;C);D);Use the table;for the question(s) below.;Consider the;following probability distribution of returns for Alpha Corporation;Current;Stock Price ($);Stock;Price in One Year ($);Return;R;Probability;PR;$35;40%;25%;$25;$25;0%;50%;$20;-20%;25%;5) The expected;return for Alpha Corporation is closest to;A) 6.67%;B) 5.00%;C) 10%;D) 0.00%;6) The variance;of the return on Alpha Corporation is closest to;A) 5.00%;B) 4.75%;C) 3.625%;D) 3.75%;7) The standard;deviation of the return on Alpha Corporation is closest to;A) 22.4%;B) 19.0%;C) 21.8%;D) 19.4%;8) Suppose an;investment is equally likely to have a 35% return or a - 20% return. The expected return for this investment is;closest to;A) 7.5%;B) 15%;C) 5%;D) 10%;9) Suppose an;investment is equally likely to have a 35% return or a - 20% return. The variance on the return for this;investment is closest to;A).151;B).0378;C) 0;D).075;10) Suppose an;investment is equally likely to have a 35% return or a -20% return. The standard deviation on the return for this;investment is closest to;A) 38.9%;B) 0%;C) 19.4%;D) 27.5%

Paper#51010 | Written in 18-Jul-2015

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