Chapter 20 - Investment Risks Flashcards

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1
Q

Beta measures an investment’s _____ risk and alpha measures an investment’s _____ risk.

A

systematic; non-systematic

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2
Q

Measures a bond’s sensitivity to interest rate changes.

A

Duration

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3
Q

Taking what a stock actually earned and subtracting its expected return results in:

A

alpha

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4
Q

Interest rate - inflation rate =

A

real interest rate

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5
Q

All known relevant information is reflected in a security’s price.

A

Efficient Market Theory

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6
Q

Which types of investments have historically shown a great deal of sensitivity to regulatory risk?

A

Limited partnerships

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7
Q

Market risk, interest-rate risk, and inflation risk are all types of:

A

systematic risk

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8
Q
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
A

C) Systematic risk

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9
Q

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:

A

Purchase call options on the foreign currency

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10
Q

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?

A

Business Risk

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11
Q

The primary concern for investors who use a buy-and-hold strategy to maintain their portfolios is:

A

The allocation of assets

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