Part 5

Question 1

Which financial security has the highest risk?

Answer 1

Equity shares

Question 2

What is the Risk- return trade off?

Answer 2

Higher risk is associated with a greater probability of higher return. Lower risk is associated with a greater probability of smaller return.

Question 3

Think carefully about this one. Some investors prefer low risk investments. Why kind of investors are they

Answer 3

Risk averse investor

Question 4

Mr. Das does not want to take risks. What kind of investments should he choose

Answer 4

Government Securities or bank deposits

Question 5

The additional return we must expect to receive for assuming risk?

Answer 5

Risk premium

Question 6

The rate of return you earn on an investment before adjusting for inflation is called the ____________ rate?

Answer 6

Nominal Return

Question 7

Kumar expects a return of 12% on his investments. If his actual return turns out to be 8%, what caused this?

Answer 7

Risk in the investment

Question 8

The chance that the actual return on an investment will vary from the expected return is called ………

Answer 8

Risk

Question 9

What is the relationship between risk & return

Answer 9

Higher the risk, Higher the returns & vice-versa

Question 10

Individual or companies that prefer low-risk, low return investments are …………. investors

Answer 10

risk-averse

Question 11

Madhu owns a risky share and anticipates earning 16.5% on her investment in that share. How would you best describe the 16.5% rate?

Answer 11

Expected return

Question 12

Madhu owns a risky share and anticipates earning 16.5% on her investment in that share. But she earns 13% on her investments. How would you best describe the 13% rate?

Answer 12

Actual Returns

Question 13

Madhu owns a risky share and anticipates earning 16.5% on her investment in that share. But she earns 13% on her investments. Was there a risk in her investments?

Answer 13

Yes. bcos actual returns vary from expected returns

Question 14

If you want higher returns, you should be willing to take ………… risk.(lower/higher/equal/no)

Answer 14

Higher

Question 15

Which is less riskier - Government Bonds or Debentures of RX Ltd. ?

Answer 15

Government Bonds. Lesser chances of default.

Question 16

Tony is a person with higher risk tolerance. What kind of investments will Tony choose?

Answer 16

He will choose investments with higher risk and higher expected return.