Finance Flashcard: Estimating Risk and Return

Front

What is the risk-free rate typically considered to be?

Back

The return on U.S. government bonds and bills

Front

What does the Capital Asset Pricing Model (CAPM) primarily use to measure market risk?

Back

Beta

Front

Which of the following describes weak-form efficiency?

Back

Prices reflect all information derived from trading

Front

What is the market risk premium?

Back

The return on the market portfolio minus the risk-free rate

Front

What does a beta greater than one indicate about a stock?

Back

It is riskier than the market portfolio

Front

What is the purpose of the efficient frontier in Modern Portfolio Theory (MPT)?

Back

To minimize risk and maximize return

Front

What does the Security Market Line (SML) illustrate?

Back

The relationship between risk and return using beta

Front

Which form of market efficiency suggests that technical analysis is ineffective?

Back

Weak-form efficiency

Front

What is the constant-growth model used for?

Back

To compute required returns using current firm data and growth estimates

Front

What is behavioral finance primarily concerned with?

Back

The study of cognitive processes and biases in financial decisions