FNAN 300 - TEST 2 2022 NEW UPDATED EXAM PTACTICRE
MATERIAL
systematic risk - nondiversifiable risk
* cant be eliminated (market risk) t
* MACRO - market/economy
* factors that systematically affect all firms : wars, inflation, recession, high interest rates,
confidence, covid-19
market risk - systematic (nondiversifiable) risk that cant be eliminated
unsystematic risk - diversifiable risk
* can be reduced by Diversification ; unique to a company
* MICRO - FIRM
* strike, interruption of raw materials, lawsuits, competition, theft, marketing programs,
management errors, location
Beta - measure of systematic risk (contribution to the riskiness of portfolio)
slope of the characteristic line
One - the markets Beta is ALWAYS ________
CAPM (Capital Asset Pricing Model) - predicts the expected required return based on
systematic (nondiversifiable) risk
SML (security market line) - shows the relationship between systematic risk and expected return
risk and return have a positive relationship
Risk Averse - avoid risk
Annuity - Payment
has to be the same amount received consecutively
, Annuity Due - the first cash flow occurs now
Bond -
Preferred Stock - hybrid > part debt / part equity
Common Stock -
Gordon Model - what is the best approach for Valuation?
Gordon Model -
Diversification - reduces risk by having more than one stock in the portfolio
Risk - used interchangeably with uncertainty ;
the variability in returns for a given asset
C.V. (Coefficient of Variation) - a measure of relative dispersion that is useful in comparing the
risks of assets with differing expected returns
Standard Deviation - the most common statistical indicator of an assets risk; it measures the
dispersion around the expected value
Portfolio - a collection, or group, of assets
basic valuation model/equation -
characteristic line - characterizes the risk of a firm's systematic risk
found by simple linear regression
aka "best fit line"
MATERIAL
systematic risk - nondiversifiable risk
* cant be eliminated (market risk) t
* MACRO - market/economy
* factors that systematically affect all firms : wars, inflation, recession, high interest rates,
confidence, covid-19
market risk - systematic (nondiversifiable) risk that cant be eliminated
unsystematic risk - diversifiable risk
* can be reduced by Diversification ; unique to a company
* MICRO - FIRM
* strike, interruption of raw materials, lawsuits, competition, theft, marketing programs,
management errors, location
Beta - measure of systematic risk (contribution to the riskiness of portfolio)
slope of the characteristic line
One - the markets Beta is ALWAYS ________
CAPM (Capital Asset Pricing Model) - predicts the expected required return based on
systematic (nondiversifiable) risk
SML (security market line) - shows the relationship between systematic risk and expected return
risk and return have a positive relationship
Risk Averse - avoid risk
Annuity - Payment
has to be the same amount received consecutively
, Annuity Due - the first cash flow occurs now
Bond -
Preferred Stock - hybrid > part debt / part equity
Common Stock -
Gordon Model - what is the best approach for Valuation?
Gordon Model -
Diversification - reduces risk by having more than one stock in the portfolio
Risk - used interchangeably with uncertainty ;
the variability in returns for a given asset
C.V. (Coefficient of Variation) - a measure of relative dispersion that is useful in comparing the
risks of assets with differing expected returns
Standard Deviation - the most common statistical indicator of an assets risk; it measures the
dispersion around the expected value
Portfolio - a collection, or group, of assets
basic valuation model/equation -
characteristic line - characterizes the risk of a firm's systematic risk
found by simple linear regression
aka "best fit line"
