Finance Questions Essay Example

1. Market risk is the chance that a totally unexpected event will have a significant effect on the value of the firm or a specific investment. Answer: FALSE 2. Purchasing-power risk is the chance that changes in interest rates will adversely affect the value of an investment; most investments decline in value when the interest rates rise and increase in value when interest rates fall. Answer: FALSE 3. If a person's required return does not change when risk increases, that person is said to be
A) risk-seeking.
B) risk-indifferent.
C) risk-averse.
D) risk-aware. 4. If a person's required return decreases for an increase in risk, that person is said to be
A) risk-seeking.
B) risk-indifferent.
C) risk-averse.
D) risk-aware. 5. ________ is the chance of loss or the variability of returns associated with a given asset.
A) Return
B) Value
C) Risk
D) Probability 6. The ________ of an asset is the change in value plus any cash distributions expressed as a percentage of the initial price or amount invested
A) return
B) value
C) risk
D) probability 7. Risk aversion is the behavior exhibited by managers who require a (n) ________.
A)increase in return, for a given decrease in risk
B) increase in return, for a given increase in risk
C) decrease in return, for a given increase in risk
D) decrease in return, for a given decrease in risk 8. Perry purchased 100 shares of Ferro, Inc. common stock for $25 per share one year ago. During the year, Ferro, Inc. paid cash dividends of $2 per share. The stock is currently selling for $30 per share. If Perry sells all of his shares of Ferro, Inc. today, what rate of return would he realize?
Answer: Realized return = = 28%

9. Tim purchased a bounce house one year ago for $6,500. During the year it generated $4,000 in cash flow. If Time sells the bounce house today, he could receive $6,100 for it. What