A Random Walk Occurs When an Asset Price

question 10

Multiple Choice

A random walk occurs when an asset price:

• A) moves in a predicable direction but with random error.
• B) makes unpredictable movements.
• C) moves in a predictable way with no error.
• D) moves slowly but predictably.

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Definitions:

Variable Amount

A sum that can change over time or depending on conditions, in contrast to a fixed amount.

Coupon Interest

The fixed interest rate paid by a bond, typically annually or semi-annually.

Junk

A colloquial term for assets or securities that are of low quality, often associated with high risk and potential high return.

Interest Rate Risk

The potential for investment losses that are caused by a change in interest rates, affecting both lending and borrowing costs.