Financial Markets Exam II Study Guide

Financial Markets Exam II Study Guide - FIN 3244 Exam II...

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FIN 3244 Exam II Study Guide Coverage: Chapter 4, 4A, 6, 10 Test Date: October 13, 2010 I. Risk Measures (Impact) on Return II. Types of Risk That Pertain to An Investment (Chapter 4 pg. 161-166) o Business Risk : the degree of uncertainty associated with an investment’s earnings and the investment’s ability to pay the returns owed investors o Financial Risk : the degree of uncertainty of payment resulting from a firm’s mix of debt and equity; the larger the proportion of debt financing, the greater this risk o Purchasing Power Risk : the chance that changing price levels (inflation or deflation) will adversely affect investment returns o Interest Rate Risk : the chance that changes in interest rates will adversely affect a security’s value o Liquidity Risk : the risk of not being able to liquidate an investment conveniently and at a reasonable price o Tax Risk : the chance that Congress will make unfavorable changes in tax laws, driving down the after-tax returns and market values of certain investments o Market Risk : risk of decline in investment returns because of market factors independent of the given investment o Event Risk : risk that comes from an unexpected event that has a significant and usually immediate effect on the underlying value of an investment o Standard Deviation(s) : a statistic used to measure the dispersion (variation) of returns around an asset’s average or expected return
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Financial Markets Exam II Study Guide - FIN 3244 Exam II...

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