Investments, 11th Edition (exclude Access Card)
11th Edition
ISBN: 9781260201543
Author: Zvi Bodie Professor; Alex Kane; Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 24, Problem 3PS
Summary Introduction
To determine:The IIR (the dollar weighted return) can be similarly ranked to the geometric average and arithmetic average knowing that the geometric average on risky investment is lower than the arithmetic average.
Introduction:IIR (
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The expected rate of return of an investment ________.
a. equals one of the possible rates of return for that investment
b. equals the required rate of return for the investment
c. is the mean value of the probability distribution of possible returns
d. is the median value of the probability distribution of possible returns
e. is the mode value of the probability distribution of possible returns
1. Which of the following statements is FALSE?
A) When an investment is risky, there are different returns it
may earn.
B) In finance, the variance of a return is also referred to as its
volatility.
C) The expected or mean return is calculated as a weighted
average of the possible returns, where the weights correspond to
the probabilities.
D) The variance is a measure of how "spread out" the
distribution of the return is.
Beta is which of the following:
A) standard deviation.
B) total risk.
C) Beta is the relationship which is between an investment's return, and the market return.
D) unsystematic risk.
Chapter 24 Solutions
Investments, 11th Edition (exclude Access Card)
Ch. 24 - Prob. 1PSCh. 24 - Prob. 2PSCh. 24 - Prob. 3PSCh. 24 - Prob. 4PSCh. 24 - Prob. 5PSCh. 24 - Prob. 6PSCh. 24 - Prob. 7PSCh. 24 - Prob. 8PSCh. 24 - Prob. 9PSCh. 24 - Prob. 10PS
Ch. 24 - Prob. 11PSCh. 24 - Prob. 12PSCh. 24 - Prob. 13PSCh. 24 - Prob. 14PSCh. 24 - Prob. 15PSCh. 24 - Prob. 16PSCh. 24 - Prob. 17PSCh. 24 - Prob. 18PSCh. 24 - Prob. 19PSCh. 24 - Prob. 20PSCh. 24 - Prob. 21PSCh. 24 - Prob. 22PSCh. 24 - Prob. 1CPCh. 24 - Prob. 2CPCh. 24 - Prob. 3CPCh. 24 - Prob. 4CPCh. 24 - Prob. 5CPCh. 24 - Prob. 6CPCh. 24 - Prob. 7CPCh. 24 - Prob. 8CPCh. 24 - Prob. 9CPCh. 24 - Prob. 10CPCh. 24 - Prob. 11CPCh. 24 - Prob. 12CPCh. 24 - Prob. 13CPCh. 24 - Prob. 14CP
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- In the context of the Capital Asset Pricing Model (CAPM), the relevant measure of risk is A. standard deviation of returns. B. beta. C. variance of returns. D. unique risk.arrow_forwardWhen, if ever, will the geometric average return exceed the arithmetic average return for a given set of returns? Never When the set of returns includes only risk-free rates. When all of the rates of return in the set of returns are equal to each other.arrow_forwardA plot/graph of the positive relation between systematic risk and expected return is called: O security market line standard deviation and width of the normal distribution O covariance graph O capital asset pricing modelarrow_forward
- in a Statistical sense, the Single Index Model is best characterized by: the Capital Market Line The Security Market Liner Regression of any asset as a linear function of the Market, plus mean-zero random error A regression of the Market, as a linear function of any given asset, plus mean-zero random error Iarrow_forwardEvaluate the following statement: If the financial market is frictionless and complete, the asset with higher expected return also exhibits higher return volatility (i.e., standard deviation of returns).arrow_forwardIf a portfolio has a positive investment in every asset, can the standard deviation of the portfolio be less than sum of the individual asset's standard deviations in the portfolio? Explainarrow_forward
- Which of the following statements regarding unsystematic risk is accurate? Multiple Choice It is measured by beta. It is compensated for by the risk premium. It can be effectively eliminated by portfolio diversification. It is measured by standard deviation. It is related to the overall economy.arrow_forwardA measure of how the returns of two risky assets move in relation to each other is the: Elasticity Covariance. Beta. Correlation. All of the other answers.arrow_forwardWhich one of the following statements is correct? Multiple Choice The risk-free rate of return has a risk premium of 1.0. The reward for bearing risk is called the standard deviation. Risks and expected return are inversely related. The higher the expected rate of return, the wider the distribution of returns. Risk premiums are inversely related to the standard deviation of returns.arrow_forward
- The Capital Asset Pricing Model (CAPM) asserts that an asset’s expected return is equal to the risk-free rate plus a risk premium for: a. Volatility b. Systematic risk c. Non-systematic risk d. Diversification e. Marginal utility of consumptionarrow_forwardassume that every asset has the same expected return and variance. furthermore, all assets have the same covariance with each other. as number of assets in a portfolio grows, which becomes more important: variance or covariance? clarify your answer using words, diagrams, formulae or a practical example.arrow_forwardWhat is the relationship between correlation and the risk of the portfolio's rate of return? i. Higher correlation means greater risk reduction ii. Higher correlation means lower risk reduction iii. Lower correlation means lower risk reduction iv. Lower correlation means greater risk reduction v. None of the abovearrow_forward
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