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FIN-350 > Exam 4 > Flashcards

Exam 4 Flashcards

1
Q

Correlation

A

Measurement of co-movement between two variables

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2
Q

Standard Deviation

A

Past return volatility of an investment

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3
Q

Coefficient of Variation

A

Relative measure of risk-return relationship

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4
Q

Negatively Correlated

A

Moving differently from each other over time

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5
Q

Positively Correlated

A

Moving together over time

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6
Q

“Firm-Specific Risk”

A

Diversifiable Risk

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7
Q

“Market Risk”

A

Non-Diversifiable Risk

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8
Q

Market Risks

A

Interest Rate, Inflation, Economic Growth, Exchange Rate

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9
Q

Modern Portfolio Theory

A

Procedure for combining securities into a portfolio to minimize risk

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10
Q

Optimal Portfolio

A

Best portfolio of securities that achieves the highest expected return for a given risk level

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11
Q

Efficient Portfolio

A

Portfolio that achieves the highest return for each level of risk

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12
Q

Efficient Frontier

A

Set of all efficient portfolios

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13
Q

Dominant Porfolio

A

Portfoliothat achieves higher return than one with comparable or greater risk

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14
Q

CAPM

A

RFR + B (Market Rate - RFR)

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15
Q

Market Risk Premium

A

Market Risk - RFR

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16
Q

Beta

A

Measurement of sensitivity of company’s stock to market risk

17
Q

Efficient Market

A

One in which prices fully reflect available information on each security

18
Q

Efficient Market Hypothesis

A

Asset prices reflect all available information

19
Q

Weak-Form Market

A

All obtainable trading information available

20
Q

Semi-Strong Form Market

A

All public information available

21
Q

Strong Form Market

A

All private information available

22
Q

Is WACC based off market or book value?

A

Market value

23
Q

WACC

A

Weighted-average after-tax cost of capital used by firm

24
Q

Expected Return

A

Average of the possible returns weighted by the likelihood of those returns occuring

25
Q

Risk Free Rate

A

The return on a U.S. treasury security

26
Q

Should WACC be based on current or proposed capital structure?

A

Proposed

FIN-350 (3 decks)

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