With Respect to the Probability Distribution of Returns

question 35

Multiple Choice

With respect to the probability distribution of returns:

• A)a risky stock has a higher probability of producing a return that is substantially closer to the mean of the distribution and a less risky stock has a higher probability of producing a return that is substantially away from the mean of the distribution.
• B)high risk implies variability in return such that returns in successive years are likely to be insignificantly different from one another.
• C)a less risky stock is likely to produce a return that is close to the mean of the distribution while a more risky stock has a higher probability of producing a return that is substantially away from the mean of the distribution.
• D)low risk implies variability in return such that returns in successive years are likely to be considerably different from one another.

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Definitions:

Percent Ownership

The portion of equity interest that an investor holds in a company, often expressed as a percentage.

Shares Common Stock

Equity securities that represent ownership interest in a corporation, with rights to dividends and to vote on corporate matters.

Variable Interest Entity

A legal entity in which an investor holds a controlling interest due to contractual agreements rather than owning a majority of voting rights.

Residual Profits

The earnings that remain after deducting all costs, including the cost of capital, from revenues.