Lesson 5 Flashcards

1
Q

It is a measure of uncertainty surrounding the return that an investment will earn. It is used interchangeably with uncertainty to refer to the variability of returns associated with a given asset.

A

Risk

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2
Q

Total gain or loss experienced on an investment over a given period.

A

Total rate of return

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3
Q

Three risk preferences

A

Risk averse
Risk neutral
Risk seeking

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4
Q

The attitude toward risk in which investors require an increased return as compensation for an increase in risk.

Requires big return as compensation in bigger risk.

Mga “Sigurista”

A

Risk averse

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5
Q

The attitude toward risk in which investors choose the investment with a higher return regardless of its risk.

They choose to invest in higher returns kahit gaano kalaki ang risk.

Mga “walang paki sa risk”

A

Risk neutral

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6
Q

The attitude toward risk in which investors prefer investments with greater risk even if they have lower expected returns.

Must prefer nila greater risk kahit mababa yung return.

“Masochist”

A

Risk seeking

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7
Q

Under risk assessment, an approach for assessing risk that uses several possible alternative outcomes or scenarios to obtain a sense of the variability among returns.

A

Scenario analysis

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8
Q

Under risk assessment, a measure of an assets risk which is found by subtracting the return associated with the pessimistic or worst outcome from the return associated with the optimistic or best outcome.

A

Range

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9
Q

A model that relates probabilities to the associated outcomes.

A

Probability distribution

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10
Q

The chance that a given outcome will occur.

A

Probability

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11
Q

The chance that a given outcome will occur.

A

Probability

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12
Q

The simplest type of probability distribution shows only a limited number of outcomes and associated probabilities for a given event.

A

Bar chart

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13
Q

A probability distribution showing all the possible outcomes and associated probabilities for a given event.

A

Continuous probability distribution

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14
Q

Under risk measurement, it is the most common statistical indicator of an assets risk; it measures the dispersion around the expected value.

A

Standard deviation

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15
Q

It is the average return that an investment is expected to produce overtime.

A

Expected value of a return

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16
Q

(T/F)

In risk assessment, the higher the range the higher the risk

A

T

17
Q

(T/F)

The higher the standard deviation, the higher the risk

A

T

18
Q

A measure of relative dispersion that is useful in comparing the risks of acids with differing expected returns

A

Coefficient of variation

19
Q

The basic theory that links risk and return for all assets.

A

Capital asset pricing model (CAPM)

20
Q

Types of risks

A

Total Risk
Diversifiable risk
Non diversifiable risk

21
Q

The combination of a security is non diversifiable risk and diversifiable risk

A

Total risk

22
Q

The portion of an assets risk that is attributable to firm specific, random causes can be eliminated through diversification. Also called as systematic risk

A

Diversifiable risk

23
Q

The relevant portion of an asset’s risk attributable to market factors that affect all firms cannot be eliminated through diversification. Also called systematic risk

A

Non diversifiable risk

24
Q

A relative measure of non diversifiable risk. An index of the degree of movement of an assets return in response to a change in market return.

A

Beta coefficient

25
Q

Can be easily estimated by using the bettas of the individual assets it includes.

Risk factor related to group of asset.

A

Portfolio betta

26
Q

A long-term debt instrument indicating that a corporation has borrowed a certain amount of money and promises to repay it in the future and their clearly defined terms.

A

Corporate bonds

27
Q

Legal aspects of corporate bonds

A

Coupon interest rate
Bond indenture
Standard debt provision
Restrictive covenants
Subordination
Sinking fund requirements
Trustee

28
Q

The present value of the payments its issuer is contractual obligated to make from the current time until it matures.

A

Value of a bond

29
Q

(T/F)

Discount is the amount by which a bond sells below its par value

A

T

30
Q

(T/F)

Premium is the amount by which a band cells above its par value

A

T

31
Q

Two Bond Value Behavior

A

Discount and Premium