If a person’s required return does not change when risk increases, that person is said to be

If a person’s required return does not change when risk increases, that person is said to
be
(a) risk-seeking.
(b) risk-indifferent.
(c) risk-averse.
(d) risk-aware.
Answer: B
Level of Difficulty: 1
Learning Goal: 1
Topic: Fundamentals of Risk and Return
2. If a person’s required return decreases for an increase in risk, that person is said to be
(a) risk-seeking.
(b) risk-indifferent.
(c) risk-averse.
(d) risk-aware.
Answer: A
Level of Difficulty: 1
Learning Goal: 1
Topic: Fundamentals of Risk and Return
3. _________ is the chance of loss or the variability of returns associated with a given
asset.
(a) Return
(b) Value
(c) Risk
(d) Probability
Answer: C
Level of Difficulty: 1
Learning Goal: 1
Topic: Fundamentals of Risk and Return
4. The _________ of an asset is the change in value plus any cash distributions expressed
as a percentage of the initial price or amount invested.
(a) return
(b) value
(c) risk
(d) probability
Answer: A
Level of Difficulty: 1
Learning Goal: 1
Topic: Fundamentals of Risk and Return
5. Risk aversion is the behavior exhibited by managers who require a greater than
proportional _________
(a) increase in return, for a given decrease in risk.
(b) increase in return, for a given increase in risk.
(c) decrease in return, for a given increase in risk.
(d) decrease in return, for a given decrease in risk.
Answer: B
Level of Difficulty: 1
Learning Goal: 1
Topic: Fundamentals of Risk and Return
6. If a person requires greater return when risk increases, that person is said to be
(a) risk-seeking.
(b) risk-indifferent.
(c) risk-averse.
(d) risk-aware.
Answer: C
Level of Difficulty: 1
Learning Goal: 1
Topic: Fundamentals of Risk and Return
7. Last year Mike bought 100 shares of Dallas Corporation common stock for $53 per
share. During the year he received dividends of $1.45 per share. The stock is currently
selling for $60 per share. What rate of return did Mike earn over the year?
(a) 11.7 percent.
(b) 13.2 percent.
(c) 14.1 percent.
(d) 15.9 percent.
Answer: D
Level of Difficulty: 2
Learning Goal: 1
Topic: Holding Period Return (Equation 5.1)
8. Prime-grade commercial paper will most likely have a higher annual return than
(a) a Treasury bill.
(b) a preferred stock.
(c) a common stock.
(d) an investment-grade bond.
Answer: A
Level of Difficulty: 2
Learning Goal: 1
Topic: Risk and Return Fundamentals
9. A common approach of estimating the variability of returns involving forecasting the
pessimistic, most likely, and optimistic returns associated with the asset is called
(a) marginal analysis.
(b) sensitivity analysis.
(c) break-even analysis.
(d) financial statement analysis.
Answer: B
Level of Difficulty: 1
Learning Goal: 2
Topic: Measuring Single Asset Risk
10. The _________ is the extent of an asset’s risk. It is found by subtracting the pessimistic
outcome from the optimistic outcome.
(a) return
(b) standard deviation
(c) probability distribution
(d) range
Answer: D
Level of Difficulty: 1
Learning Goal: 2
Topic: Measuring Single Asset Risk