20 Lecture

1. What is the purpose of a probability graph in relation to single stock investment? A) To show the trend of the stock price over time B) To display the likelihood of different returns occurring C) To predict the future price of the stock D) To compare the stock to other investments

Answer: B) To display the likelihood of different returns occurring

2. What does a normal distribution curve represent in a probability graph? A) The actual return of the stock B) The expected return of the stock C) The likelihood of different returns occurring D) The trend of the stock price over time

Answer: C) The likelihood of different returns occurring

3. What is the coefficient of variation (CV) used for in single stock investment? A) To predict the future price of the stock B) To measure the standard deviation of the stock's returns C) To compare the risk of different investments with different expected returns D) To measure the average return of the stock

Answer: C) To compare the risk of different investments with different expected returns

4. A higher coefficient of variation (CV) indicates: A) A greater degree of risk B) A lower degree of risk C) A higher average return D) A lower average return

Answer: A) A greater degree of risk

5. What does the coefficient of variation (CV) compare in single stock investment? A) The standard deviation of the stock's returns to its mean return B) The stock's current price to its historical price C) The stock's expected return to the market's expected return D) The stock's dividend yield to its market value

Answer: A) The standard deviation of the stock's returns to its mean return

6. Which of the following is a factor that can contribute to risk in single stock investment? A) Market stability B) Company-specific risks C) Low volatility D) Political stability

Answer: B) Company-specific risks

7. What is the relationship between risk and return in single stock investment? A) Positive B) Negative C) Neutral D) It depends on the stock

Answer: A) Positive

8. Which of the following strategies can be used to manage risk in single stock investment? A) Diversification B) Setting stop-loss orders C) Utilizing hedging techniques D) All of the above

Answer: D) All of the above

9. Which statistical measure of risk allows investors to compare the risk of different investments with different expected returns? A) Standard deviation B) Coefficient of variation C) Sharpe ratio D) Beta coefficient

Answer: B) Coefficient of variation

10. What is the purpose of risk management in single stock investment? A) To eliminate all risk from the investment B) To balance risk and return C) To guarantee a certain level of return D) To increase the risk of the investment

Answer: B) To balance risk and return

1. What is the probability distribution of a stock investment? Answer: The probability distribution of a stock investment is a graphical representation that shows the likelihood of different outcomes based on different levels of risk.

2. What is the risk-return tradeoff for a single stock investment? Answer: The risk-return tradeoff for a single stock investment is the relationship between the level of risk associated with the investment and the potential return that can be earned.

3. What is the coefficient of variation? Answer: The coefficient of variation is a statistical measure that is used to measure the risk of an investment relative to its expected return.

4. How is the probability distribution of a stock investment related to its risk? Answer: The probability distribution of a stock investment is related to its risk because it shows the range of potential outcomes and the likelihood of each outcome based on the level of risk associated with the investment.

5. How does the coefficient of variation help investors evaluate risk? Answer: The coefficient of variation helps investors evaluate risk by measuring the risk of an investment relative to its expected return. The higher the coefficient of variation, the higher the risk associated with the investment.

6. What is the expected return of a stock investment? Answer: The expected return of a stock investment is the amount of return that an investor can expect to earn on the investment based on the level of risk associated with the investment.

7. What is the significance of the probability graph in stock investment? Answer: The probability graph in stock investment is significant as it helps investors to visualize the range of potential outcomes and the likelihood of each outcome based on the level of risk associated with the investment.

8. How can an investor calculate the coefficient of variation? Answer: An investor can calculate the coefficient of variation by dividing the standard deviation of the investment by its expected return.

9. How does the coefficient of variation help investors compare the risk of different investments? Answer: The coefficient of variation helps investors compare the risk of different investments by providing a standardized measure of risk that can be used to compare investments with different expected returns.

10. What is the relationship between risk and return for a single stock investment? Answer: The relationship between risk and return for a single stock investment is that higher levels of risk are generally associated with higher potential returns, but also with a greater likelihood of losses.

Risk is an inherent factor in any investment, including a single stock investment. The level of risk associated with a stock investment is determined by several factors such as the company's financial health, market conditions, and the overall economic climate. Investors need to evaluate the risk associated with a stock investment to make an informed decision about its potential return. One tool that investors use to evaluate the risk of a stock investment is the probability distribution graph. This graphical representation shows the likelihood of different outcomes based on different levels of risk. The probability distribution graph can help investors to visualize the range of potential outcomes and the likelihood of each outcome based on the level of risk associated with the investment. Another tool that investors use to evaluate the risk of a stock investment is the coefficient of variation. The coefficient of variation is a statistical measure that is used to measure the risk of an investment relative to its expected return. It is calculated by dividing the standard deviation of the investment by its expected return. The coefficient of variation helps investors evaluate risk by providing a standardized measure of risk that can be used to compare investments with different expected returns. The higher the coefficient of variation, the higher the risk associated with the investment. The coefficient of variation can also help investors to identify investments that offer a high potential return relative to their risk. In conclusion, evaluating the risk of a single stock investment is crucial for making an informed investment decision. Probability distribution graphs and the coefficient of variation are two tools that investors can use to evaluate the risk of an investment. By understanding these tools, investors can better assess the level of risk associated with a stock investment and make more informed investment decisions.