16. In a decision problem context, what does the risk analyst call the set of un

Question

16. In a decision problem context, what does the risk analyst call the set of uncertain outcomes facing the decision maker? a. the choice set b. Probability outcomes c. Decision rules d. State of nature 17. The type of financial risk associated the S&P; 500 stock index is called ? a. systematic risk b. avoidable risk c. idiosyncratic risk d. event risk 18. The slope of the security market line can be interpreted as? a. systematic risk b. income to return trade off c. risk free rate of return d. market risk premium

Explanation / Answer

16. (B) Probability outcomes. Probability is an idea that an outcome either occur or doesn't occur and the outcomes are uncertain.

17. (A) Systematic risk. The market is usually represented by a well known index like the S&P 500. It affects a wide range of assets and securities Systematic risk is the volatility that affects many industries, stocks and assets. Systematic risk affects the overall market and is difficult to predict.

18. (D) Market risk premium. A standard graph shows beta values across its x-axis and expected return across its y-axis. The risk-free rate, or beta of zero, is located at the y-intercept. The purpose of the graph is to identify the action, or slope, of the market risk premium. In financial terms, this line is a visual representation of the risk-return tradeoff.

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