Financial Management - Study Mode

[#871] In an individual stock, relevant risk is classified as
Correct Answer

(B) beta coefficient

Explanation

Solution: In an individual stock, relevant risk is classified as beta coefficient. A beta coefficient is a measure of the volatility, or systematic risk, of an individual stock in comparison to the unsystematic risk of the entire market.

[#872] Type of premium asked by investors for bearing risk on average stock is classified as
Correct Answer

(B) market risk premium

Explanation

Solution: Type of premium asked by investors for bearing risk on average stock is classified as market risk premium. The market risk premium is the difference between the expected return on a market portfolio and the risk-free rate. The market risk premium is equal to the slope of the security market line (SML), a graphical representation of the capital asset pricing model (CAPM).

[#873] Bond which is issued in market and few days are passed of its issuance is classified as
Correct Answer

(B) outstanding bond

Explanation

Solution: Bond which is issued in market and few days are passed of its issuance is classified as outstanding bond. Outstanding Bonds means the aggregate principal amount of the total number of Bonds not redeemed or otherwise discharged.

[#874] Real risk-free rate is applicable when it is expected that there will be
Correct Answer

(D) none of above

Explanation

Solution: The risk-free rate of return is the theoretical rate of return of an investment with zero risk. The risk-free rate represents the interest an investor would expect from an absolutely risk-free investment over a specified period of time.

[#875] Bonds that do not pay original coupon payment but payment is made from additional bonds are classified as
Correct Answer

(A) payment in-kind bonds

Explanation

Solution: Bonds that do not pay original coupon payment but payment is made from additional bonds are classified as payment in-kind bonds. A payment-in-kind (PIK) bond is a type of bond that pays interest in additional bonds rather than in cash.