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Temple Keen FIN3101 Chapter 8 Exam Latest Version with A+ Graded Answers, Exams of Finance

University of North Texas (UNT)Finance

Temple Keen FIN3101 Chapter 8 Exam Latest Version with A+ Graded Answers

Typology: Exams

2024/2025

Available from 11/19/2024

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Temple Keen FIN3101 Chapter 8 Exam
Latest Version with A+ Graded Answers.
What are the four elements needed to appropriately compare
alternative investments? - Correct Ans: ✔✔
1. Dollar Gain/Loss
2. Size of the investment
3. Length of holding
4.Measure of risk
What are HPRs, simple and compounded annual returns and how do
you compute them? - Correct Ans: ✔✔HPRs (holding period returns):
however long you hold an asset asset- HPR = HPR
simple returns: HPR/n
compound returns:(1+HPR)^(1/n)-1
What is the relationship between the standard deviation (σ) and the
degree of risk? - Correct Ans: ✔✔Standard deviation is the measure of
risk
Higher SD more risk!
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Download Temple Keen FIN3101 Chapter 8 Exam Latest Version with A+ Graded Answers and more Exams Finance in PDF only on Docsity!

Temple Keen FIN3101 Chapter 8 Exam

Latest Version with A+ Graded Answers.

What are the four elements needed to appropriately compare alternative investments? - Correct Ans: ✔✔

  1. Dollar Gain/Loss
  2. Size of the investment
  3. Length of holding 4.Measure of risk What are HPRs, simple and compounded annual returns and how do you compute them? - Correct Ans: ✔✔HPRs (holding period returns): however long you hold an asset asset- HPR = HPR simple returns: HPR/n compound returns:(1+HPR)^(1/n)- 1 What is the relationship between the standard deviation (σ) and the degree of risk? - Correct Ans: ✔✔Standard deviation is the measure of risk Higher SD more risk!

What are the 4 classes of assets Brooks analyzes and how do their average returns and standard deviations compare? - Correct Ans: ✔✔

  1. 3 month T bills
  2. Long term Gov Bonds
  3. Large Company stock
  4. Small Company stock What are the basic guidelines for selecting assets based on the combination of their E(r)s and σs? - Correct Ans: ✔✔decision rule - like returns and dislike risk when two investments have the same return, pick lower risk when two investments have the same risk, pick the one with the higher return What is the meaning of unsystematic and systematic risk and by what other names are these risks known? - Correct Ans: ✔✔Unsystematic risks are often tied to a specific company or industry and can be avoided COMPANY SPECIFIC Systematic risk is a non-diversifiable risk or MARKET RISK

calculated by subtracting the return on risk-free investment from the return on investment What are the "Reward" and "Risk" in the reward-to-risk ratio and how is this ratio related to Question #1 above? - Correct Ans: ✔✔Reward - Risk Free Rate and Risk Premium What is the rule for selecting assets based on their reward-to-risk ratios? - Correct Ans: ✔✔Highest Reward/Risk Ratio

  1. The best measure to use when comparing alternative investments is the four measurements [EQ1, 2 &13]
  2. With holding periods of more than a year, annualizing the HPR makes it smaller. [EQ2]
  3. In order to properly evaluate a stock, investors need risk premium size of investment and more. [EQ1&12&13&14]
  4. Ceteris paribus, higher standard deviations represent higher risk. [EQ3]
  1. Based on the period 1950 - 1999, you would have the higher uncertainty about any expected return on small company stocks than you would about the expected return on 3-month T-Bills. [EQ4]
  2. Our author discusses the average return and standard deviation for 4 different assets for the period 1950 - 1999. [EQ4]
  3. By diversifying you can eliminate most or all of un-systematic risk. [EQ7]
  4. The lower the correlation coefficient between two stocks, the greater will be the benefit from diversifying by combining the two stocks in a port - Correct Ans: ✔✔All TRUE The correlation coefficient is a measure of: - Correct Ans: ✔✔the degree of variation between asset returns. The CAPM is a model of: - Correct Ans: ✔✔non-diversifiable risk of a security relative to all risky returns. The beta of a portfolio is the: - Correct Ans: ✔✔a measure of the volatility of the portfolio compared to the market as a whole. You purchased Hobo Hats stock last year for $60 a share. Today, you received $2 a share dividend and immediately sold the stock for $63.

Over the past 20 years, the average annual return for ShortStop Baseball Gear has been 9% and the standard deviation has been 4%. Given this information you know that the: - Correct Ans: ✔✔95% prediction interval is from 1% to 17%. If the required return for a security is 15% and the risk-free rate is 6%, the risk premium is: - Correct Ans: ✔✔9% Market risk can also be called: - Correct Ans: ✔✔non-diversifiable risk __________ risk is the only risk that matters to investors with broadly diversified portfolios. - Correct Ans: ✔✔Systematic A stock's holding period return represents: - Correct Ans: ✔✔the total return earned over a specific period through buying and selling an asset. You are considering two securities. Security A has a historical average annual return of 7% and a standard deviation of 3%. Security B has a historical average annual return of 7% and a standard deviation of 9%. From this information you can conclude that: - Correct Ans: ✔✔Security B is more risky than Security A.

You are considering two securities. Security A has a historical average annual return of 7% and a standard deviation of 3%. Security B has a historical average annual return of 7% and a standard deviation of 9%. From this information you can conclude that Security B is more risky than Security A. Both securities have the same return but security B is much riskier than security A since it has a higher standard deviation. Standard deviation measures dispersion around the mean for normally distributed securities and a higher number represents greater risk. The beta for a portfolio is determined by calculating: - Correct Ans: ✔✔a weighted average of individual stock betas where the weights equal the percentage invested in each stock. The expected return on a portfolio is: - Correct Ans: ✔✔calculated as the weighted average of the expected returns of the securities in the portfolio. Which of the following correlation coefficients (CorrAB) would generate the most benefit in terms of risk reduction for a 2-asset portfolio that consists of 40% in Asset A and 60% in Asset B? - Correct Ans: ✔✔-. The normal distribution is a symmetrical distribution that is described by its: - Correct Ans: ✔✔mean and standard deviation.