Lesson 5

Question 1

It is a measure of uncertainty surrounding the return that an investment will earn. It is used interchangeably with uncertainty to refer to the variability of returns associated with a given asset.

Answer 1

Risk

Question 2

Total gain or loss experienced on an investment over a given period.

Answer 2

Total rate of return

Question 3

Three risk preferences

Answer 3

Risk averse
Risk neutral
Risk seeking

Question 4

The attitude toward risk in which investors require an increased return as compensation for an increase in risk.

Requires big return as compensation in bigger risk.

Mga “Sigurista”

Answer 4

Risk averse

Question 5

The attitude toward risk in which investors choose the investment with a higher return regardless of its risk.

They choose to invest in higher returns kahit gaano kalaki ang risk.

Mga “walang paki sa risk”

Answer 5

Risk neutral

Question 6

The attitude toward risk in which investors prefer investments with greater risk even if they have lower expected returns.

Must prefer nila greater risk kahit mababa yung return.

“Masochist”

Answer 6

Risk seeking

Question 7

Under risk assessment, an approach for assessing risk that uses several possible alternative outcomes or scenarios to obtain a sense of the variability among returns.

Answer 7

Scenario analysis

Question 8

Under risk assessment, a measure of an assets risk which is found by subtracting the return associated with the pessimistic or worst outcome from the return associated with the optimistic or best outcome.

Answer 8

Range

Question 9

A model that relates probabilities to the associated outcomes.

Answer 9

Probability distribution

Question 10

The chance that a given outcome will occur.

Answer 10

Probability

Question 11

The chance that a given outcome will occur.

Answer 11

Probability

Question 12

The simplest type of probability distribution shows only a limited number of outcomes and associated probabilities for a given event.

Answer 12

Bar chart

Question 13

A probability distribution showing all the possible outcomes and associated probabilities for a given event.

Answer 13

Continuous probability distribution

Question 14

Under risk measurement, it is the most common statistical indicator of an assets risk; it measures the dispersion around the expected value.

Answer 14

Standard deviation

Question 15

It is the average return that an investment is expected to produce overtime.

Answer 15

Expected value of a return

Question 16

(T/F)

In risk assessment, the higher the range the higher the risk

Answer 16

T

Question 17

(T/F)

The higher the standard deviation, the higher the risk

Answer 17

T

Question 18

A measure of relative dispersion that is useful in comparing the risks of acids with differing expected returns

Answer 18

Coefficient of variation

Question 19

The basic theory that links risk and return for all assets.

Answer 19

Capital asset pricing model (CAPM)

Question 20

Types of risks

Answer 20

Total Risk
Diversifiable risk
Non diversifiable risk

Question 21

The combination of a security is non diversifiable risk and diversifiable risk

Answer 21

Total risk

Question 22

The portion of an assets risk that is attributable to firm specific, random causes can be eliminated through diversification. Also called as systematic risk

Answer 22

Diversifiable risk

Question 23

The relevant portion of an asset’s risk attributable to market factors that affect all firms cannot be eliminated through diversification. Also called systematic risk

Answer 23

Non diversifiable risk

Question 24

A relative measure of non diversifiable risk. An index of the degree of movement of an assets return in response to a change in market return.

Answer 24

Beta coefficient

Question 25

Can be easily estimated by using the bettas of the individual assets it includes.

Risk factor related to group of asset.

Answer 25

Portfolio betta

Question 26

A long-term debt instrument indicating that a corporation has borrowed a certain amount of money and promises to repay it in the future and their clearly defined terms.

Answer 26

Corporate bonds

Question 27

Legal aspects of corporate bonds

Answer 27

Coupon interest rate
Bond indenture
Standard debt provision
Restrictive covenants
Subordination
Sinking fund requirements
Trustee

Question 28

The present value of the payments its issuer is contractual obligated to make from the current time until it matures.

Answer 28

Value of a bond

Question 29

(T/F)

Discount is the amount by which a bond sells below its par value

Answer 29

T

Question 30

(T/F)

Premium is the amount by which a band cells above its par value

Answer 30

T

Question 31

Two Bond Value Behavior

Answer 31

Discount and Premium