Managers that anticipate greater return for greater risk

Question 1

Risk Adverse

Answer 1

Managers who demand more return on an investment as risk increases

Question 2

Risk Indifferent

Answer 2

Manager who is neutral with regard to the return associated with a particular investment

Question 3

Risk Seeking Behavior

Answer 3

Managers who seek reduce return for higher risk

Question 4

Risk that cannot be eliminated through a portfolio are called

Answer 4

Systematic Risks

Question 5

A type of risk that can be reduced by diversification

Answer 5

Labor strikes - Diversifiable risk, sometimes called unsystematic risk or firm specific risk can be mitigated by allocation of portfolio of investments among various firms.

Question 6

Corporation A is considering borrowing $100,000 for one year at a stated interest rate of 9%. if the borrowing is in the form of discounted note, what is the effective interest rate?

Answer 6

principal $100,000 X .09 (discounted) = $9,000
$100,000 - 9,000 = 91,000
9,000/91,000= 9.89%

Question 7

Corporation A is computing the annual percentage rate on the most recent borrowing of $10,000 - Nominal interest rate 5% - Net proceeds to Corp A. are $9,500 the annual percentage rate of interest is

Answer 7

the annual percentage rate on debt is equal to the amount of payments required under the contract divided by the net proceeds of the debt. In this case the amount of payments is 10,000 X 10% = 1,000 ;therefore $1.000/9,500= 10.5%