FINA 4011 - EXAM 2 questions and 100% correct answers

The probability distribution lets us derive measurements for both the reward and the risk of the investment. The reward from the investment is its __________, which you can think of as the average return you would earn if you were to repeat an investment in the asset many times. a) expected return b) variance c) standard deviation d) effective annual rate - correct answer a) expected return __________ is a probability weighted average of squared deviation from expected value. a) Normal distribution b) Variance c) Value at risk d) Standard deviation - correct answer b) Variance The __________ is central to the theory and practice of investments. It has symmetric bell shaped distribution. The distribution is determined by only two parameters: mean and standard deviation a) skewed distribution b) poisson distribution c) beta distribution d) normal distribution - correct answer d) normal distribution Which of the following statements about normal distribution is FALSE? a) Most finance theories rely on an assumption that stock returns are normally distributed. b) The return of a portfolio is normally distributed if all of its assets have normally distributed returns. c) Standard deviation is the appropriate measure of risk for a portfolio with normally distributed returns.