Chapter 20 - Investment Risks Flashcards
Beta measures an investment’s _____ risk and alpha measures an investment’s _____ risk.
systematic; non-systematic
Measures a bond’s sensitivity to interest rate changes.
Duration
Taking what a stock actually earned and subtracting its expected return results in:
alpha
Interest rate - inflation rate =
real interest rate
All known relevant information is reflected in a security’s price.
Efficient Market Theory
Which types of investments have historically shown a great deal of sensitivity to regulatory risk?
Limited partnerships
Market risk, interest-rate risk, and inflation risk are all types of:
systematic risk
An investor who has a diversified portfolio of large-cap stocks could use index options to reduce which of the following risks? A) Timing risk B) Interest-rate risk C) Systematic risk D) Non-systematic risk
C) Systematic risk
A company is importing goods from Europe and is concerned about the falling value of the US dollar. To protect itself from this currency risk, the company could:
Purchase call options on the foreign currency
A client sells the shares she owned of a company whose stock is a major market index. If the proceeds are reinvested in an SP 500 Index Fund, the client has reduced what risk?
Business Risk
The primary concern for investors who use a buy-and-hold strategy to maintain their portfolios is:
The allocation of assets