Investment Planning

Question 1

What are the distribution percentages of a normal distribution?

+/- 1, 2, 3 = ?%

Answer 1

68% = +/- 1 standard deviation
95% = +/- 2 standard deviation
99% = +/- 3 standard deviation

Question 2

standard deviation is a _____ & ______.

and used to determine…?

Answer 2

1. measure of risk
2. variability of return

used to determine Total risk of an undiversifed portfolio

Question 3

how to calculate Standhard diviation?

dan has two stocks, which is risker?
A. 10% 13 % 8% -2% 14%
B. 6% -3% 4% -5% 7%

Answer 3

when exam is asking which one more risker, calculate standard deviation, higher number is risker.

pg: 20

Question 4

coefficient of variation

and formula

Answer 4

determining which investment has more relative risk when investment has differnt average return

CV= standard deviation/average return

Question 5

Kurtosis
1. Leptokurtic
2. Platykurtic

Answer 5

1. high peak and fat tails
   (high chance of extreme event)
2. low peak and thin tails
   (lower chance of extreme event)

Question 6

Beta is measure of 1. and 2.

Standard diviation is measure of 3.

Answer 6

1. systematic risk
2. market risk
3. total risk

Question 7

when considering a porfolio, which should be considered
1. diversified
2. nondiversified

Answer 7

1. Beta (one with high r2)
2. standard deviation

Question 8

coefficient of determination

or r-squared (r2)

Answer 8

how much return is due to the market or % of security return is due to market.

higher the r2 is more return from market (systematic risk) and less from unsystematic risk.

if r2 is more than 0.7, beta is approriate measure of total risk. if less than 0.7, standard deviation should be us