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Unformatted text preview: Chapter 5: 1. Risk is the variability in returns associated with an investment 2. You compute the return on the asset by subtracting the beginning price from the ending price, adding any cash distributions, and dividing by the beginning price. 3. A person whop prefers more risk to less risk and who does not require additional return to compensate for increased risk is risk seeker . 4. Assume that last year you purchased 100 shared of Rubber Ducky Inc. for $25 share. The price 1 year later is $27 per share. If a 2.50 dividend was paid, what is the return? 18% 5. Assume that you purchased stock last year for $27. Todays price is $25. What is the return? -7.41% 6. One method to evaluate the riskiness of an investment opportunity is to estimate the cast flows under the most optimistic, most likely, and most pessimistic set of assumptions. flows under the most optimistic, most likely, and most pessimistic set of assumptions....
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- Spring '10