# Finance Ch. 8

 The realized rate of return is the … Systematic risk is the only risk that matters to investors with broadly diversified portfolios. The equity market risk premium is the: return of equities over T-bills. The expected rate of return is the: return forecasted to occur in the future. You are considering two securities. Security A has a historical average annual return of 7% and a standard deviation of 3%. Security B has a historical average annual return of 7% and a standard deviation of 9%. From this information you can conclude that: Security B is more risky than Security A. You purchased Hobo Hats stock last year for \$60 a share. Today, you received \$2 a share dividend and immediately sold the stock for \$63. Your realized return, or holding period return, was _________. 8.33% An investor’s required rate of return should be a function of the: risk-free rate of return plus a risk premium for the stock’s systematic risk. Which of the following would be the best example of systematic risk? The Federal Reserve tightens the money supply to fight inflation which causes the interest rates to rise. The premise that an investor will only be rewarded with higher returns for assuming higher systematic risk is based on: efficient markets. The geometric return is the: compound average return. The risk-return tradeoff principle in finance is: the expectation of receiving higher returns for higher risk investments. A stock’s holding period return represents: the total return earned over a specific period through buying and selling an asset. The normal distribution is a symmetrical distribution that is described by its: mean and standard deviation. Your great grandparents placed \$1 in an investment in 1925. Which of the following securities would have given them the highest average annual return over the past eight decades? Small stocks Which of the following is the best description of systematic risk? Any risk that will impact the value of all assets simultaneously. Market risk can also be called non-diversifiable risk. An efficient market is a financial market with: securities that accurately reflect information. The expected rate of return is the: Return forecasted to occur in the future The risk of a portfolio is best described as the: standard deviation of expected portfolio returns. The __________ indicates the tendency of historical returns to be different from their average and how far away from the average they tend to be. variance What is the percentage return of a stock that was purchased for \$45 and sold one year later for \$55 if the stock also paid \$3 in dividends over that time period? r= (3+55-45)/(45)28.9%
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