Financial Management - Study Mode

[#411] Standard deviation of tighter probability distribution is
Correct Answer

(D) smaller

Explanation

Solution: Standard deviation of tighter probability distribution is smaller. The smaller the standard deviation, the tighter the probability distribution, and the lower the risk.

[#412] An opposite of perfect positive correlation + 1.0 is called
Correct Answer

(A) negative correlation

Explanation

Solution: An opposite of perfect positive correlation + 1.0 is called negative correlation. Negative correlation is a relationship between two variables in which one variable increases as the other decreases, and vice versa.

[#413] A technique of lowering risk for multinational companies and globally designed portfolios is classified as
Correct Answer

(C) global diversification

Explanation

Solution: A technique of lowering risk for multinational companies and globally designed portfolios is classified as global diversification. Today, asset allocation has evolved beyond domestic stocks, bonds and cash to include global diversification across equities, fixed income and nontraditional investments. Global diversification can help in managing risk and positioning your portfolio for long-term growth.

[#414] Risk which is caused by events such as strikes, unsuccessful marketing programs and other lawsuits is classified as
Correct Answer

(C) diversifiable risk

Explanation

Solution: Risk which is caused by events such as strikes, unsuccessful marketing programs and other lawsuits is classified as diversifiable risk. Diversifiable risk is the possibility that there will be a change in the price of a security because of the specific characteristics of that security. Diversification of an investor's portfolio can be used to offset and therefore eliminate this type of risk.

[#415] Required return is 11% and premium for risk is 8% then risk free return will be
Correct Answer

(A) 3.00%

Explanation

Solution: Risk free return = Required return - Premium for risk = 11% - 8% = 3%