1. All of the following are aspects of risk except A) Refers to the chance...

1. All of the following are aspects of risk except

A) Refers to the chance that an investor’s actual return will be different than anticipated.

B) A risk may not include the possibility of losing all, or some, of the original investment amount.

C) The risk is measured by calculating the historical returns or the average returns of a specific investment.

D) A risk may also be described as a person, company or other institution that owns at least a share in a company.

2. ____________ has and inverse relationship to the rating the instrument or organization is given.

A. Yield/Interest Rate B. IPO C. Tax Rate D. Preferred Stock

Solutions

Expert Solution

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1) Correct Answer: Option B ) A risk may not include the possibility of losing all, or some, of the original investment amount.

Risk does include the possibility of losing some or all of the original investment. Therefore option B is the right fit here. Option A correctly defines the risk and is somewhat the definition of standard deviation which is a measure of risk. Option C is right as risk can be calculated using historical data and the average of the returns. Option D as well fits the definition of risk. Thus Option B is the correct answer to the question

2) Correct Answer: Option A) Yield/Interest Rate has an inverse relationship to the rating the instrument or organization is given.

Option A is correct because the higher the rating is given to a company better it is the ability to repay the obligation. A sound rating depicts less risk lending to that particular company as ratings are done on the wholesome basis covering both macro and micro factors. Since the risk is low, interest rates are low as well. Thus this option is correct. IPO has a direct relation with the rating and not indirect. Tax rates have nothing to do with the rating of the instruments or organization as is fixed either way. Higher rating increases preferred stockholders as they deem it to be a safer option. Therefore, Option B, C, and D are incorrect

jeff jeffy answered 1 year ago

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