CHAPTER 8

RISK AND RATES OF

RETURN
Please provide the correct answer. Each slide is timed for 2
minutes, so please manage your time in answering the
activity. Goodluck.

CARTALLA, LEZEL MEE A.

TORRES, ROXAN H.
VIOLETA, GRETCHEN T.
CHAPTER 8
1 .This refer to the additional return over the risk free rate
needed to compensate investors for assuming an average
amount of risk (1pt)

A. Rpm B. Rm C. RPi

2-3. What are the 2 elements of treasury securities

4. The risk of an investment often depends on how long

you plan to hold the investment

A. TRUE B. FALSE
CHAPTER 8
5 .This is an equation that shows the relationship between
risk as measured by beta and the required rates of return
on individual securities

A. Expected rate of return

B. Realized rate of Return
C. Security Market Line

6. Risk averse investor prefers high risk investment only if

the expected returns are greater

A. True B. False
CHAPTER 8
7. Stand alone risk is the risk an investor would face if
he/she held the asset in a portfolio

A.True B. False

8-10. Enumerate the three statistical measures of Stand-

Alone Risk (3 pts)

11. The difference between the expected rate of return on a

given risky asset and that on a less risky asset refers to
what we called as the coefficient of variation
A. True B. False
CHAPTER 8
12. The tighter the probability of expected future returns,
the smaller the risk of a given investment
A.True B. False

13-14 What are the two ways a risk of a asset can be

analyzed?

15. The tendency of the two variables to move together is

called _____?

A. Correlation B. Portfolio c. Beta

CHAPTER 8
16. It is the weighted average of the expected returns of
the individual assets in the portfolio

A.Expected Return on a Portfolio

B. Diversified Portfolio
C. Correlation coefficient

17. The return that was actually earned during some past
period
A.Diversified Portfolio
B.Expected return on a portfolio
C.Realized Rate of Return
CHAPTER 8
18. This type of portfolio’s total risk stems from factors
that systematically affect most firms: war, inflation,
recessions, high interest rates and other macro factors
A. Diversifiable risk
B. Market Risk
C. Financial Risk

19. What determines how the stock affects the riskiness of

a diversified portfolio
A. Expected return on a portfolio
B. Diversified Portfolio
C. Stock’s beta coefficient
CHAPTER 8
20. This type of portfolio’s total risk can be eliminated and
most investors do eliminate it by holding a very large
portfolios or by buying shares in a mutual fund

A. Diversifiable risk
B. Market Risk
C. Financial Risk
INSTRUCTION

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