Investment Risk Assessment Quiz

The total return on an investment over a specific period, expressed as a percentage.

The holding period yield (HPY) expressed on an annual basis.

The price paid for a share or investment at the beginning.

The price at which an investment is sold.

Calculated using the formula: (Selling Price - Initial Investment Price) / Initial Investment Price.

The profit or loss generated from an investment.

The length of time an investment is held before being sold.

An increase in investment value over time.

Evaluating potential risks and their impact on a project or investment.

A technique to determine the range of possible outcomes based on varying inputs.

A model showing the likelihood of different outcomes occurring.

A statistical measure of the dispersion (spread) of potential returns of an investment.

A relative measure of risk, calculated by dividing the standard deviation by the expected return.

Standard deviation calculated for investment portfolios (combining different assets).

A formula to calculate how spread out the values are from the average in a dataset.

Calculates the risk relative to the return using a formula.

The difference between the maximum and minimum values in a dataset.

A measure of the dispersion of a dataset around its mean.

A standardized measure of risk, calculated as the ratio of standard deviation to the mean.

The difference between the maximum and minimum expected returns for Asset C.

The difference between the maximum and minimum expected returns for Asset D.

The possibility that an investment's actual return will differ from its expected return.

Describes the economic situation and its associated probability (e.g., Decline 0.3, Stable 0.6, Upturn 0.1).

The expected return for Asset C in each economic state.

The expected return for Asset D in each economic state.

An asset with a greater variability in possible returns, thus a higher risk.

A framework for understanding and managing investments, considering risk and return.

A mathematical approach to portfolio optimization, aiming to find the best combination of assets for a given level of risk.

A model that describes the relationship between risk and return for individual assets within a portfolio.

A model that extends CAPM to include factors beyond market risk, such as inflation and economic growth.

An investment that guarantees a certain return with no risk of loss.

These economists played crucial roles in developing the Capital Asset Pricing Model (CAPM).

The CAPM builds upon the MPT by incorporating the concept of a risk-free asset. While MPT provides a framework for optimal portfolio construction, CAPM adds a way to measure and adjust for risk based on market trends.

Portfolio theories provide frameworks for investors to make informed decisions about asset allocation, risk management, and maximizing returns. They help in understanding the dynamics of markets and the relationship between risk and reward.

Assumptions used in the Capital Asset Pricing Model (CAPM) to simplify the analysis of investment risk and return.

The assumption that investors can obtain unlimited funds to invest, without any financial constraints.

Assumption that assets can be bought and sold in any desired fraction, allowing investors to create diversified portfolios.

Investors have the same time horizon for holding investments, simplifying the analysis of portfolio returns.

Investors assess investment opportunities based on the expected return and standard deviation (risk) of a portfolio.

The assumption that investments in a portfolio are not affected by taxes or transaction costs, simplifying the analysis.

Investors project the same probability distributions for rates of return on different assets.

The market is efficient, meaning all publicly available information is reflected in asset prices, making it impossible to consistently outperform the market.

The Capital Asset Pricing Model (CAPM) is a financial model that determines the expected rate of return for an asset based on its systematic risk (beta) relative to the overall market.

The risk-free rate of return is the theoretical rate of return on an investment with zero risk, often represented by the return on government bonds.

Beta represents the volatility of a specific asset compared to the overall market. A beta of 1 means the asset's price moves with the market, while a beta greater than 1 implies higher volatility and a beta less than 1 indicates less volatility.

The market risk premium is the additional return investors expect for investing in the stock market compared to a risk-free investment.

Inflation is the rate of increase in prices of goods and services over a period of time. It erodes the purchasing power of money.

Risk-aversion refers to the degree to which investors are willing to accept risk for potential reward. Investors with higher risk-aversion require higher returns for taking on the same level of risk.

The required return is the minimum rate of return an investor expects to receive for investing in a particular asset, considering its risk level and other factors.