22. The excess return required from a risky asset over that required from a risk

Question

22. The excess return required from a risky asset over that required from a risk-free asset is called the: A. risk premium, B. geometric premium. C. excess return. D. average return. E. variance. 23. The average squared difference between the actual return and the average return is called the: A. volatility return. B. variance. C. standard deviation D. risk premium. E. excess return. 24. The standard deviation for a set of stock returns can be calculated as the: A positive square root of the average return. B. average squared difference between the actual return and the average return. C. positive square root of the variance. D. average return divided by N minus one, where N is the number of returns. E. variance squared. 25. A portfolio of large company stocks would contain which one of the following types of securities? stocks of the firms which represent the smallest 20% of the companies listed on the NYSE B. U.S. Treasury bills C. long-term corporate bonds D. stocks of firms included in the S&P; 500 index E. long-term government bonds 26. Which one of the following is a correct ranking of securities based on their volatity over the period of 1926 to 2011? Rank from highest to lowest. A. large company stocks, U.S. Treasury bills, long-term government bonds B. small company stocks, long-term corporate bonds, large company stocks C. long-term government bonds, long-term corporate bonds, small company stocks D. small company stocks, large company stocks, long-term corporate bonds E. long-term corporate bonds, large company stocks, U.S. Treasury bills

Explanation / Answer

Question 22

Correct answer is Risk Premium.

A risk premium is the return in excess of the risk-free rate of return an investment is expected to yield, an asset's risk premium is a form of compensation for investors who take the extra risk, compared to that of a risk-free asset, in a given investment.

Question 23

correct answer Variance

Variance is calculated by taking the differences between each number in the set and the mean, squaring the differences and dividing the sum of the squares by the number of values in the set.

Question 24

Answer:- Positive square root of variance.

Standard deviation by definition is positive square root of variance.

Question 25:-

Answer:- The American Association of Individual Investors publishes model portfolios that give some guidelines. The organization says aggressive investors might put 20 percent of their money in larger company stocks and 20 percent in smaller companies, with the rest in a variety of international stocks and bonds, as well as medium-size companies. The association recommends moderately aggressive investors put 20 percent of their portfolio in larger stocks and 10 percent in smaller companies.

So according to this large company portfolio would contain stocks of the firms which represent smallest 20% of companies listed on NYSE.

Question 26.

Correct Answer:- small company stocks, large company stocks , long-term corporate bonds

bonds are considered safer than stocks and

Ranking from high risk to low risk

Small company stocks

large company stocks

long-term corporate bonds

long term government bonda

and U.S. Treasury bills.

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