Financial Management - Study Mode

[#441] In capital asset pricing model, an amount of risk that stock contributes to portfolio of market is classified as
Correct Answer

(D) beta coefficient

Explanation

Solution: In capital asset pricing model, an amount of risk that stock contributes to portfolio of market is classified as beta coefficient. Beta coefficient is a measure of sensitivity of a company's stock price to movement in the broad market index. It is an indicator of a stock's systematic risk which is the undiversifiable risk inherent in the whole financial system. Beta coefficient is an important input in the capital asset pricing model (CAPM)

[#442] Case in which average investors risk aversion is greater than slope of line and risk premium respectively is
Correct Answer

(A) steeper, greater

Explanation

Solution: Case in which average investors risk aversion is greater than slope of line and risk premium respectively is steeper, greater. Risk aversion means that investors will tend to purchase safe assets like highly rated bonds and CDs. Risk-averse individuals seek capital preservation over growth, which may actually be detrimental for those who are younger.

[#443] Expected returns weighted average on assets in portfolio is considered as
Correct Answer

(B) expected return on portfolio

Explanation

Solution: Expected returns weighted average on assets in portfolio is considered as expected return on portfolio. The expected return for an investment portfolio is the weighted average of the expected return of each of its components.

[#444] Correct measure of risk of stock is called
Correct Answer

(B) beta

Explanation

Solution: Correct measure of risk of stock is called beta. The beta of an investment is a measure of the risk arising from exposure to general market movements as opposed to idiosyncratic factors.

[#445] Standard deviation is 18% and coefficient of variation is 1.5% an expected rate of return will be
Correct Answer

(C) 19.50%

Explanation

Solution: Expected rate of return = Standard deviation + Coefficient of variation = 18% + 1.5% = 19.50%.