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List the five steps in the risk management process (in order) and describe each one in at least one sentence: (5 pts.) ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________
- List the five steps in the risk management process (in order) and describe each one in at least one sentence: (5 pts.)
- ________________________________________________________________________
- ________________________________________________________________________
- ________________________________________________________________________
- ________________________________________________________________________
- ________________________________________________________________________
- The following is the probability distribution of rate of return for a particular stock: (5 pts.)
Rate of Return | Probability |
20% | 0.30 |
5% | 0.40 |
-10% | 0.30 |
- What is the expected return of this stock?
- What is the standard deviation of the expected return?
- What is the confidence interval of the expected return within one standard deviation? Within two standard deviations?
- Name three characteristics which distinguish a futures contract from a forward contract:
- ________________________________________________
- ________________________________________________
- ________________________________________________
- Answer the following questions regarding risk & diversification:
- Define diversification.
- What is the benefit of diversification?
- What is the difference between diversifiable risk and non-diversifiable risk?
- Give 1-2 examples each of risk factors of diversifiable and non-diversifiable risk.
- Define the riskless asset.
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