To Describe the Random Variable of the Portfolio Rate of Return

question 15

Multiple Choice

To describe the random variable of the portfolio rate of return, the investor needs

• A) mean and coefficient of correlation.
• B) median and standard deviation.
• C) only the expected value.
• D) expected value and standard deviation.

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Definitions:

CAPM

The Capital Asset Pricing Model (CAPM) is a financial model that describes the relationship between systematic risk and expected return for assets, particularly stocks.

Flotation Costs

Expenses incurred by a company in issuing new securities, including underwriting, legal, registration, and printing fees.

Expected Inflation

The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling, as anticipated by consumers, investors, and economists.

Cost of Capital

The Cost of Capital is the cost of a company's funds (both debt and equity), or, from an investor's point of view, the required rate of return on a portfolio company's existing securities.