Unit 5: Risk and Return Flashcards
True or false
The standard deviation is always the square root of the variance.
True
Wendy bought a share of stock for $100 and received a $5 dividend. If the stock price rises to $105 then the total dollar return is _____
$10
If an investor buys a stock for $10 and later sells it for $16, she will have a capital gain/loss of how many dollars?
Capital gain of $6
What is arithmetic average return?
The return earned in an average year over a multi-year period.
How do you calculate the expected return on a security or asset?
The sum of the possible returns multiplied by their probabilities.
E(R) =Σ Rj X Pj
- Rj = value of the jth outcome
- Pj = associated probability of occurence
- Σ = the sum over all j
What is Dividend Yield calculated?
Dt/Pt
Given the same set of data which will be smaller? The geometric average return… or … the arithmetic average return?
Geometric Average Return.
The function to calculate Standard deviation is
STDEV()
What is variance?
The average squared deviation between the actual return and the average return
What will the dividend income on 1,000 shares of XYZ corp stock if XYZ Corp distributes a dividend of $0.20 per share?
$200
What is expected return?
the future gain or loss from a risky asset.
The total dollar return on a stock is the sum of the ____ and the _____.
dividend; capital gain.
True or false
Value at Risk is a statistical measure of maximum loss used by banks and other financial institutions to manage risk exposures.
True
What is the formula for Capital Gains Yield?
(Pt+1 - Pt)/Pt
If Sharon receives a #2 dividend per share on 100 shares, her total dividend income is ____
$200
What is a portfolio?
A group of assets such as stocks and bonds held by an investor.
What is standard deviation?
The positive square root of the variance.
true or false
Risk is directly related to the return
True
What are the two most commonly used measures of volatility?
- Variance
- Standard Deviation
What is efficient capital market?
Market in which security prices reflect available information.
True or false
Variance and standard deviation are the two most commonly used measures of volatility.
True
What is value at risk (VaR)?
Statistical measure of maximum loss used by banks and other financial institutions to manage risk exposures.
Randy invested $100 and made a total dollar return of $10 over the course of the year. If Randy sells the stock at the end of the year, the year-end total cash is ____
$110
What is a portfolio weight(s)?
Percentage of a portfolio’s total value in a particular asset.
What is geometric average return?
The average compound return earned per year over a multi-year period.
CBA corp stock drops from $50 to $40. If an investor owns 100 shares, his total capital loss will be ____
$ -1000
If you purchase a stock for $25 and received a $2 dividend at the end of the year your dividend yield is?
$2/$25 = 0.08 = 8%
True or false
There is no relationship between risk and reward
False
Dividends are the _____ component of the total return from investing in a stock
income
The price of ABC corp rises from $10 to $15 per share. If an investor owns 100 shares, her capital gain is _____?
$500
True or false
Stock market history indicates the greater the risk the lower the potential reward
false
What is the arithmetic average return on a stock that had the following returns for the last 4 years?
5%, -4%, 3% and 12%?
4%
What is risk premium?
The excess return required from an investment in a risky asset over a risk-free asset.
2 ways you can make money from investments in stocks are….
- Dividends
- Capital gains
If an investor buys a stock for $10 and later sells it for $16, she will have a _____ _____ of $6.
Capital gain
The positive square root of the variance is called _______ ______
standard deviation
True or false
The higher the risk, the higher the return
True
