FIN 320 Chapter 11 Smartbook
Exam Questions with Correct
Answers
Expected return - Correct Answers: it is the return that an investor expects to earn on a risky asset in the
future
risk premium - Correct Answers: additional compensation for taking risk, over and above the risk-free
rate
variance - Correct Answers: standard deviation is the square root of ______, _______ is a measure of
the squared deviations of a security's return from it expected return
If investors are risk averse, it is reasonable to assume that the risk premium for the stock market will be:
- Correct Answers: positive
the computation of variance requires 4 steps. Place the steps in the correct order from the first step to
the last step. - Correct Answers: 1. calculate the expected return
2. calculate the deviation of each return from the expected return
3. square each deviation
4. calculate the average squared deviation
Total return = - Correct Answers: expected return + unexpected return
When a dollar in the future is discounted to the present it is worth less because of the time value of
money, but when a news item is discounted, it means that the market: - Correct Answers: already knew
about most of the news item
t/f the surprise part of any announcement is the information the market uses to form the expectation of
the return on the stock - Correct Answers: false
Exam Questions with Correct
Answers
Expected return - Correct Answers: it is the return that an investor expects to earn on a risky asset in the
future
risk premium - Correct Answers: additional compensation for taking risk, over and above the risk-free
rate
variance - Correct Answers: standard deviation is the square root of ______, _______ is a measure of
the squared deviations of a security's return from it expected return
If investors are risk averse, it is reasonable to assume that the risk premium for the stock market will be:
- Correct Answers: positive
the computation of variance requires 4 steps. Place the steps in the correct order from the first step to
the last step. - Correct Answers: 1. calculate the expected return
2. calculate the deviation of each return from the expected return
3. square each deviation
4. calculate the average squared deviation
Total return = - Correct Answers: expected return + unexpected return
When a dollar in the future is discounted to the present it is worth less because of the time value of
money, but when a news item is discounted, it means that the market: - Correct Answers: already knew
about most of the news item
t/f the surprise part of any announcement is the information the market uses to form the expectation of
the return on the stock - Correct Answers: false
