Financial Management - Study Mode

[#191] Weighted average of probabilities is classified as
Correct Answer

(B) expected rate of return

Explanation

Solution: Weighted average of probabilities is classified as expected rate of return. The expected return on a financial investment is the expected value of its return. It is a measure of the center of the distribution of the random variable that is the return.

[#192] Market risk and diversifiable risk are two components of
Correct Answer

(A) stock's risk

Explanation

Solution: Market risk and diversifiable risk are two components of stock's risk. Risk in stock and bond investments is all about what might cause you to lose money on those investments.

[#193] Market risk premium is 8% and risk free return is 7% then market required return would be
Correct Answer

(A) 15.00%

Explanation

Solution: Required market return = Market risk premium + Risk free return = 8% + 7% = 15%.

[#194] Range of probability distribution with 68.26% lies within
Correct Answer

(C) (+ 1σ and -1σ)

Explanation

Solution:

[#195] 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)