If the Risk Associated with a Company Goes Down, You

question 57

Multiple Choice

If the risk associated with a company goes down, you would expect the price of its stock to

• A) rise.
• B) fall.
• C) be unaffected.
• D) fall to zero.

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Definitions:

Coefficient of Variation

A statistical measure of the dispersion of data points in a data series around the mean, expressed as a percentage of the mean, often used to assess the risk of an investment relative to its expected return.

Historical Excess Returns

The returns on an investment or portfolio in excess of a benchmark or risk-free rate, assessed over a specific historical period.

Geometric Mean Return

The average rate of return on an investment that takes into account the effects of compounding.

Small-Firm Stocks

Equity shares of smaller companies that are often characterized by higher growth potential and higher risk compared to large-cap stocks.