The _________ of an event occurring is the percentage chance of a given outcome.

11. The _________ of an event occurring is the percentage chance of a given outcome.
(a) dispersion
(b) standard deviation
(c) probability
(d) reliability
Answer: C
Level of Difficulty: 1
Learning Goal: 2
Topic: Measuring Single Asset Risk
12. _________ probability distribution shows all possible outcomes and associated
probabilities for a given event.
(a) A discrete
(b) An expected value
(c) A bar chart
(d) A continuous
Answer: D
Level of Difficulty: 1
Learning Goal: 2
Topic: Measuring Single Asset Risk
13. The _________ measures the dispersion around the expected value.
(a) coefficient of variation
(b) chi square
(c) mean
(d) standard deviation
Answer: D
Level of Difficulty: 1
Learning Goal: 2
Topic: Standard Deviation
14. The _________ is a measure of relative dispersion used in comparing the risk of assets
with differing expected returns.
(a) coefficient of variation
(b) chi square
(c) mean
(d) standard deviation
Answer: A
Level of Difficulty: 1
Learning Goal: 2
Topic: Coefficient of Variation
15. Since for a given increase in risk, most managers require an increase in return, they are
(a) risk-seeking
(b) risk-indifferent
(c) risk-free
(d) risk-averse
Answer: D
Level of Difficulty: 2
Learning Goal: 2
Topic: Risk and Return Fundamentals
16. Which asset would the risk-averse financial manager prefer? (See below.)
Asset A B C D
Initial investment $15,000 $15,000 $15,000 $15,000
Annual rate of return
Pessimistic 8% 5% 3% 11%
Most likely 12% 12% 12% 12%
Optimistic 14% 13% 15% 14%
(a) Asset A.
(b) Asset B.
(c) Asset C.
(d) Asset D.
Answer: D
Level of Difficulty: 3
Learning Goal: 2
Topic: Expected Return and Standard Deviation (Equation 5.2 and Equation 5.3)
17. The expected value and the standard deviation of returns for asset A is (See below.)
Asset A
Possible Outcomes Probability Returns (%)
Pessimistic 0.25 10
Most likely 0.45 12
Optimistic 0.30 16
(a) 12 percent and 4 percent.
(b) 12.7 percent and 2.3 percent.
(c) 12.7 percent and 4 percent.
(d) 12 percent and 2.3 percent.
Answer: B
Level of Difficulty: 3
Learning Goal: 2
Topic: Expected Return and Standard Deviation (Equation 5.2 and Equation 5.3)
18. The _________ the coefficient of variation, the _________ the risk.
(a) lower; lower
(b) higher; lower
(c) lower; higher
(d) more stable; higher
Answer: A
Level of Difficulty: 3
Learning Goal: 2
Topic: Coefficient of Variation
19. Given the following expected returns and standard deviations of assets B, M, Q, and D,
which asset should the prudent financial manager select?
Asset Expected Return Standard Deviation
B 10% 5%
M 16% 10%
Q 14% 9%
D 12% 8%
(a) Asset B
(b) Asset M
(c) Asset Q
(d) Asset D
Answer: A
Level of Difficulty: 4
Learning Goal: 2
Topic: Expected Return and Standard Deviation (Equation 5.4)
20. The expected value, standard deviation of returns, and coefficient of variation for asset
A are (See below.)
Asset A
Possible Outcomes Probability Returns (%)
Pessimistic 0.25 5
Most likely 0.55 10
Optimistic 0.20 13
(a) 10 percent, 8 percent, and 1.25, respectively.
(b) 9.33 percent, 8 percent, and 2.15, respectively.
(c) 9.35 percent, 4.68 percent, and 2, respectively.
(d) 9.35 percent, 2.76 percent, and 0.3, respectively.
Answer: D
Level of Difficulty: 4
Learning Goal: 2
Topic: Expected Return and Standard Deviation (Equation 5.2, Equation 5.3 and
Equation 5.4)