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APMA Module 1: Investment Risk & Return Analysis questions n answers
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APMA Module 1: Investment Risk & Return Analysis questions n answers
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APMA Module 1: Investment Risk &Return Analysis
Expected Return - correct answer ✔✔investor's estimate of a return, given the economic & market
prospects for an investment; sum of expected dividend yield & capital gain
Required Return - correct answer ✔✔return required to induce an investor to invest in an asset, given
that asset's level of risk
Realized Return - correct answer ✔✔actual total return (income plus capital gains) earned on an
investment
Total Risk - correct answer ✔✔uncertainty that an investment will deliver its expected return,
mathematically expressed as standard deviation for a security; sum of unsystematic risk & systematic risk
Unsystematic Risk (Diversifiable or Unique Risk) - correct answer ✔✔- business risk*
- call risk
- credit risk
- default risk
- event risk (most often bonds)
- financial risk*
- investment manager risk
- liquidity risk
- marketability risk (no active market)
- tax risk
- political risk
- country risk*
Systematic Risk (PRIME) - correct answer ✔✔- purchasing power risk (inflation; often bonds)
, - reinvestment risk (often bonds)
- interest rate risk (often bonds)
- market risk
- exchange rate risk
Endogenous Risk - correct answer ✔✔risk from shocks that are generated and amplified within the
financial system; investors not acting rationally; some believe this risk is the primary risk investors need
to be concerned with; ex. 2008 financial crisis
Beta - correct answer ✔✔measure of systematic risk; statistical measure of a stock's volatility (measured
against stock index)
Covariance - correct answer ✔✔tendency of the returns of two assets to move, over time, in the same
or in a different direction
Correlation Coefficient - correct answer ✔✔statistical measure of the strength of the relationship of the
returns of two assets
Coefficient of determination - correct answer ✔✔proportion of the total variation in returns of a security
that is explained by the variation in returns of another security or of a benchmark index
Coefficient of Variation - correct answer ✔✔investment's risk per unit of expected return
10-15; 25-30 - correct answer ✔✔Some studies have suggested that a well-diversified portfolio can be
formed with (blank) large cap securities selected from different industries; however, when dealing with
mid to small cap stocks, (blank) is needed to achieve the same diversification effect.
4-7 - correct answer ✔✔Studies of mutual funds have shown that (blank) funds in different asset classes
optimize diversification benefits.
Return; Risk - correct answer ✔✔In the fundamental risk/return relationship, it is almost always (blank),
not (blank), that gets the most attention from most investors.
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