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Questions and Answers
Which one of the following correctly defines the market risk premium?
Which one of the following correctly defines the market risk premium?
- The market risk premium is the risk-free return divided by the market return rate.
- The market risk premium is the expected market return minus the risk-free rate. (correct)
- The market risk premium is the market return rate divided by the risk-free rate.
- The market risk premium is the risk-free return minus the expected market return.
Which one of the following accurately describes asset allocation?
Which one of the following accurately describes asset allocation?
- Asset allocation refers to the process of managing risk through a combination of stocks, bonds, and cash. (correct)
- Asset allocation refers to the process of dividing investments between stocks and bonds.
- Asset allocation refers to the process of diversifying investments within a portfolio.
- Asset allocation refers to the process of determining the level of investment in stocks based on age.
If the risk-free rate is 4% and the expected rate of return on an investment is 8%, what is the market risk premium?
If the risk-free rate is 4% and the expected rate of return on an investment is 8%, what is the market risk premium?
- $4\%$
- $8\%$
- $16\%$
- $12\%$ (correct)
Which of the following best describes the relationship between risk and return in investing?
Which of the following best describes the relationship between risk and return in investing?
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What is the primary factor that determines an individual's risk tolerance when investing?
What is the primary factor that determines an individual's risk tolerance when investing?
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Which of the following is NOT a common asset class in investing?
Which of the following is NOT a common asset class in investing?
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What is the best strategy for long-term investing in terms of risk management?
What is the best strategy for long-term investing in terms of risk management?
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Which of the following best describes the difference between saving and investing?
Which of the following best describes the difference between saving and investing?
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What is risk tolerance?
What is risk tolerance?
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Why is investing considered to be higher risk compared to saving?
Why is investing considered to be higher risk compared to saving?
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