FIN350 MGH CH9_10_11

Question 1

Cost of capital used by a firm with weights set equal to the relative % of each type of capital used is known as

Accepted Answer

Weighted average cost of capital

Question 2

The portion of risk that is attributable to industry factors and can be reduced through diversification?

Accepted Answer

firm specific risk

Question 3

The individual costs of each type of capital - bonds, preferred stock and common stock

Accepted Answer

component costs

Question 4

The average of the possible returns weighted by the likelihood of those returns occurring?

Accepted Answer

expected return

Question 5

A securities market in which prices fully reflect available information on each security

Accepted Answer

efficient market

Question 6

The stocks of small companies that are priced below $1 per share

Accepted Answer

penny stocks

Question 7

An asset pricing theory based on a beta, a measure of market risk

Accepted Answer

capital asset pricing model

Question 8

The net present value decision technique uses a statistic denominated in

Accepted Answer

currency

Question 9

The set of portfolios that have the maximum expected return for each level of risk?

Accepted Answer

efficient portfolios

Question 10

A measure of the sensitivity of a stock or portfolio to market risk?

Accepted Answer

beta

Question 11

A measure of past return volatility or risk of an investment?

Accepted Answer

standard diviation

Question 12

The return on the portfolio minus the risk-free rate.

Accepted Answer

market risk premium

Question 13

A theory that describes what types of information are reflected in current stock prices

Accepted Answer

efficient market hypothesis

Question 14

A measurement of the co-movement between two variables that ranges between -1 and +1?

Accepted Answer

correlation

Question 15

The volatility of an investment, which includes current portions of firm-specific risk and market risk

Accepted Answer

total risk

Questions 15