Chapter 10

1

Two of the most important financial analysis concepts are & _

1

''financial risk'' is present whenever there is some chance of earning a return on an investment that is ____ than the amount expected.

1

the greater the probability of a return ''far below'' that anticipated, the ___ the risk

1

choose 3.
in their attitude towards investment risk, investors can be

1

Most investors are ''risk averse'' which means that _ risk investments require _ rates of return

it is risk aversion that makes risk concepts so important to financial decision making

1

the chance that an event will occur is called its _ of _, or just probability

1

a ''probability _____'' lists all possible event outcomes along with their probabilities

1

example, a probability distribution a coin toss:

1

very poor .10 [-10% -20%]
poor .20 [0 0]
average .40 [10 15]
good .20 [20 30]
very good .10 [30 50]

1

''expected rate of return'' is estimated ___ an investment is made

1

after the fact, the return that is actually achieved is called ____ rate of return

1

when risk is present, the realized rate of return _____ equals the expected rate of return

rarely

1

''stand alone risk'' is defined and measured assuming an investment will be held in ____

1

stand alone risk can be measured by the degree of ____

1

common measure of ''stand alone risk'' is the __ _, usually represented by a lower case sigma ___

1

what is CV?

1

the coefficient of variables (cv) is defined as the standard deviation divided by the expected rate of return
for example: CV mri == 11%/10% = 1.1

it is a _ measure _ risk

1

which is riskier?
CV mri = 11%/10% = 1.1
CV clinic = 18%/15%= 1.2

indicates that the clinic investment is riskier than the MRI investment

CV is most useful when comparing investments with widely different returns

1

standard deviation (cv) is an applicable risk measure _ when an investment is held in __

1

most investments are held as part of a collection, or _____, of investments

1

when investments are held in ''portfolios'', the relevant return, and hence risk, is that of the _____ portfolio

1

A, B, C, D (Referring to slide 10-14) are single assets
AB, AC, AD are equal weighted aka 50/50 portfolios of those single assets

1

''expected rate of return on a portfolio'' is merely the ___ average

1

a ''portfolio's return'' is simply the ''weighted average'' of the returns of the components

however, a ''portfolio's risk'' which is typically measured by standard deviation is ''_'' the weighted average of the component of standard deviations

it depends on the _ among the returns of the portfolio's components

1

the movement relationship between _ variable (s) is called _

1

correlatoin is measured by the ''correlation efficient'', _

1

r = +1 : perfect positive correlation

r = -1: perfect negative correlation

r= 0 : zero correlation

1

it is ''difficult'' to generalize about correlations among investment returns.

however, it is _ (if not _ ) to find r = +1 , r = -1, or even r = 0

the correlation between 2 randomly chosen investments is likely to range from +0.4 to + 0.8

''why?''

wz

Two of the most important financial analysis concepts are __ & ___

''financial risk'' is present whenever there is some chance of earning a return on an investment that is ____ than the amount expected.

the greater the probability of a return ''far below'' that anticipated, the ___ the risk

choose 3. in their attitude towards investment risk, investors can be

Most investors are ''risk averse'' which means that ___ risk investments require ___ rates of return it is risk aversion that makes risk concepts so important to financial decision making

the chance that an event will occur is called its ___ of ___, or just probability

a ''probability _____'' lists all possible event outcomes along with their probabilities

example, a probability distribution a coin toss:

very poor .10 [-10% -20%] poor .20 [0 0] average .40 [10 15] good .20 [20 30] very good .10 [30 50]

''expected rate of return'' is estimated ___ an investment is made

after the fact, the return that is actually achieved is called ____ rate of return

when risk is present, the realized rate of return _____ equals the expected rate of return rarely

''stand alone risk'' is defined and measured assuming an investment will be held in ____

stand alone risk can be measured by the degree of ____

common measure of ''stand alone risk'' is the ____ ___, usually represented by a lower case sigma ___

what is CV?

the coefficient of variables (cv) is defined as the standard deviation divided by the expected rate of return for example: CV mri == 11%/10% = 1.1 it is a _____ measure _____ risk

which is riskier? CV mri = 11%/10% = 1.1 CV clinic = 18%/15%= 1.2 indicates that the clinic investment is riskier than the MRI investment CV is most useful when comparing investments with widely different returns

standard deviation (cv) is an applicable risk measure _____ when an investment is held in ______

most investments are held as part of a collection, or _____, of investments

Two of the most important financial analysis concepts are & _

choose 3.
in their attitude towards investment risk, investors can be

Most investors are ''risk averse'' which means that _ risk investments require _ rates of return

it is risk aversion that makes risk concepts so important to financial decision making

the chance that an event will occur is called its _ of _, or just probability

very poor .10 [-10% -20%]
poor .20 [0 0]
average .40 [10 15]
good .20 [20 30]
very good .10 [30 50]

when risk is present, the realized rate of return _____ equals the expected rate of return

rarely

common measure of ''stand alone risk'' is the __ _, usually represented by a lower case sigma ___

the coefficient of variables (cv) is defined as the standard deviation divided by the expected rate of return
for example: CV mri == 11%/10% = 1.1

it is a _ measure _ risk

which is riskier?
CV mri = 11%/10% = 1.1
CV clinic = 18%/15%= 1.2

indicates that the clinic investment is riskier than the MRI investment

CV is most useful when comparing investments with widely different returns

standard deviation (cv) is an applicable risk measure _ when an investment is held in __

A, B, C, D (Referring to slide 10-14) are single assets
AB, AC, AD are equal weighted aka 50/50 portfolios of those single assets

the movement relationship between _ variable (s) is called _

r = +1 : perfect positive correlation

r = -1: perfect negative correlation

r= 0 : zero correlation

it is ''difficult'' to generalize about correlations among investment returns.

however, it is _ (if not _ ) to find r = +1 , r = -1, or even r = 0

the correlation between 2 randomly chosen investments is likely to range from +0.4 to + 0.8

''why?''