which of the following are examples of information that may impact the risk return of a stock

What are the different types of risks and returns?

Different types of risks include project-specific risk, industry-specific risk, competitive risk, international risk, and market risk. Return refers to either gains and losses made from trading a security.

What factors influence the type of returns that investors can expect?

Several factors influence the type of returns that investors can expect from trading in the markets. Diversification allows investors to reduce the overall risk associated with their portfolio but may limit potential returns.

What are the 7 types of risk involved in stocks?

Become A Better Stock Investor 1 7 Common Types of Risk Involved in Stocks 1. Market risk 2. Business Risk 3. Liquidity Risk 4. Taxability Risk 5. Interest Rate Risk 6. Regulatory Risks 7. Inflationary Risk: 2 Bonus: A few other risks 3 Closing Thoughts

What are some examples of high-risk-high return investments?

Examples of high-risk-high return investments include options, penny stocks and leveraged exchange-traded funds (ETFs). Generally speaking, a diversified portfolio reduces the risks presented by individual investment positions. For example, a penny stock position may have a high risk on a singular basis,...

What two factors determine a stock's total return quizlet?

2 factors that determine a stock's total return? R stands for the actual total return in the year, E(R) stands for the expected part of the return and U stand for the unexpected part of the return. Amount of the systematic risk present in a particular risky asset relative to that in an average risky asset.

Which of the following are examples of systematic risk?

Systematic risk is risk that impacts the entire market or a large sector of the market, not just a single stock or industry. Examples include natural disasters, weather events, inflation, changes in interest rates, war, even terrorism.

What are the two components of the expected return on the market?

What are two components of the expected return on the market? The risk-free rate, the risk premium.

What are the two components of risk in the total return equation?

False; Market risk and unsystematic risk are the two components of risky return in the total return equation. As more securities are added to a portfolio, what will happen to the portfolio's total unsystematic risk? - It is likely to decrease.

What is the systematic risk of the stock return?

Systematic risk is that part of the total risk that is caused by factors beyond the control of a specific company, such as economic, political, and social factors. It can be captured by the sensitivity of a security's return with respect to the overall market return.

What is systematic risk in stock market?

What Is Systematic Risk? Systematic risk refers to the risk inherent to the entire market or market segment. Systematic risk, also known as “undiversifiable risk,” “volatility” or “market risk,” affects the overall market, not just a particular stock or industry.

Which of the following are needed to describe the distribution of stock returns quizlet?

Dividends are the ______ component of the total return from investing in a stock. Which of the following are needed to describe the distribution of stock returns? The distribution of stock returns can be described using its mean and standard deviation.

What is the expected return on the market quizlet?

- If enough securities are added, all the unsystematic risk of the securities in the portfolio should cancel one another out. What is the definition of expected return? It is the return that an investor expects to earn on a risky asset in the future.

Which of the following is true regarding the expected return of a portfolio?

Solution(By Examveda Team) It can never be above the highest individual return is true regarding the expected return of a portfolio. The expected return for an investment portfolio is the weighted average of the expected return of each of its components.

What is an example of risk and return?

Description: For example, Rohan faces a risk return trade off while making his decision to invest. If he deposits all his money in a saving bank account, he will earn a low return i.e. the interest rate paid by the bank, but all his money will be insured up to an amount of….

What are the basic concepts of risk and return?

The risk-return tradeoff states that the potential return rises with an increase in risk. Using this principle, individuals associate low levels of uncertainty with low potential returns, and high levels of uncertainty or risk with high potential returns.

What is risk and rate of return?

To put it simply, risk and the required rate of return are directly related by the simple fact that as risk increases, the required rate of return increases. When risk decreases, the required rate of return decreases.

Why do investors use risk-return tradeoffs?

Investors use the risk-return tradeoff as one of the essential components of each investment decision, as well as to assess their portfolios as a whole.

What is high risk high return?

When an investor considers high-risk-high-return investments, the investor can apply the risk-return tradeoff to the vehicle on a singular basis as well as within the context of the portfolio as a whole. Examples of high-risk-high return investments include options, penny stocks and leveraged exchange-traded funds (ETFs). Generally speaking, a diversified portfolio reduces the risks presented by individual investment positions. For example, a penny stock position may have a high risk on a singular basis, but if it is the only position of its kind in a larger portfolio, the risk incurred by holding the stock is minimal.

What is risk return tradeoff?

The risk-return tradeoff is the trading principle that links high risk with high reward. The appropriate risk-return tradeoff depends on a variety of factors including an investor’s risk tolerance, the investor’s years to retirement and the potential to replace lost funds.

Why is a diversified portfolio important?

Generally speaking, a diversified portfolio reduces the risks presented by individual investment positions. For example, a penny stock position may have a high risk on a singular basis, but if it is the only position of its kind in a larger portfolio, the risk incurred by holding the stock is minimal.

What are the different types of risk?

Different types of risks include project-specific risk, industry-specific risk, competitive risk, international risk, and market risk. Return refers to either gains and losses made from trading a security. The return on an investment is expressed as a percentage and considered a random variable that takes any value within a given range.

What is default risk?

On investments with default risk, the risk is measured by the likelihood that the promised cash flows might not be delivered. Investments with higher default risk usually charge higher interest rates, and the premium that we demand over a riskless rate is called the default premium.

What is it called when you own stock?

An individual who owns stock in a company is called a shareholder and is eligible to claim part of the company’s residual assets and earnings (should the company ever be dissolved). The terms "stock", "shares", and "equity" are used interchangeably.

Is a portfolio positive or negative?

in a portfolio can be either positive or negative for each asset for any period. Thus, in large portfolios, it can be reasonably argued that positive and negative factors will average out so as not to affect the overall risk level of the total portfolio. The benefits of diversification can also be shown mathematically:

What is the portion of return that is unaffected by present or future information?

It is the portion of return that is unaffected by present or future information. It is the portion of return that depends on information that is currently known. It is the return that is classified as risky by bond rating agencies . It is the portion of return that depends on information that is currently unknown.

Why is the risk free rate always positive?

Because the risk-free rate is equal to zero. Because the value of beta is always positive. Because the difference between the return on the market and the risk-free rate is likely to be positive. Because the difference between the return on the market and the risk-free rate is likely to be positive.

What is the risk of a recession?

It is a risk that is unavoidable. It is a risk that affects a single asset or a small group of assets. Marks Company believes that there is a sixty percent chance of a recession and a forty percent chance of a boom. In the case of recession, the company expects to earn a 2% return.

What is the systematic risk principle?

It is the portion of return that depends on information that is currently unknown. The systematic risk principle argues that the market does not reward risks: that are dangerous. in any circumstances. that are borne unnecessarily.

What are the factors that affect stock prices?

Geopolitical risk. The political stability and financial strength of countries around the world can affect stock prices. Issues such as politics, new legislation, financial regulations, tax policy and trade wars can cause market volatility in both developed and emerging markets.

Why invest in a mix of stocks?

Investing in a mix of stocks increases diversification and can help reduce the risks associated with individual companies.

What is liquidity in investing?

Liquidity. Liquidity measures how easy it is to buy and sell an investment. If there aren't many buyers for the stock you own, you may have trouble selling it. Stocks with low trading volume can be harder to sell and pose a risk because you may not be able to sell an investment when the time is right for you. 4.

Why is margin important in investing?

Using margin tends to magnify portfolio volatility and can cause additional risk associated with interest rates. For example, if interest rates rise, the cost of borrowing rises, which makes it harder to produce positive returns on your investments. 7. Interest-Rate Risk.

What is foreign exchange risk?

Foreign-exchange risk. Canadian investors that hold foreign investments face the risk of fluctuating exchange rates. When you are buying or selling a stock in a foreign currency, a change in the exchange rate can affect your performance returns.

Is it better to invest in equities or bonds?

Investing in equities comes with more risk than investing in cash or bonds. However, equities also have the potential to produce higher returns. Understanding the risks that come with your investments can help you feel more confident in your decisions.

What is risk in investing?

In an investor context, risk is the amount of uncertainty an investor is willing to accept in regard to the future returns they expect from their investment.

How is risk measured in investing?

The equation measures how volatile the stock is (its price swings) compared to its average price. The higher the standard deviation, the higher the risk for a stock or security, and the higher the expected returns should be to compensate for taking on that risk.

What is risk in finance?

Although it is often used in different contexts, risk is the possibility that an outcome will not be as expected, specifically in reference to returns on investment in finance. However, there are several different kinds or risk, including investment risk, market risk, inflation risk, business risk, liquidity risk and more.

What is inflation risk?

Inflation risk, sometimes called purchasing power risk, is the risk that the cash from an investment won't be worth as much in the future due to inflation changing its purchasing power. Inflation risk primarily examines how inflation (specifically when higher than expected) may jeopardize or reduce returns due to the eroding the value of the investment.

Why are small companies at risk of liquidity?

As a general rule, small companies or issuers tend to have a higher liquidity risk due to the fact that they may not be able to quickly cover debt obligations. Essentially, if an individual or company is unable to pay off their short-term debts, they are at liquidity risk.

What is equity risk?

Equity risk is experienced in every investment situation in that it is the risk an equity's share price will drop, causing a loss. In a similar vein, interest rate risk is the risk that the interest rate of bonds will increase, lowering the value of the bond itself.

What is market risk?

Market risk is a broad term that encompasses the risk that investments or equities will decline in value due to larger economic or market changes or events. Under the umbrella of "market risk" are several kinds of more specific market risks, including equity risk, interest rate risk and currency risk.

What are the different types of risk in stocks?

Here are 7 common types of risk involved in stocks that every stock investor should know: 1. Market risk. This is also called systematic risk and is based on the day-to-day price fluctuation in the market. The market index Sensex and Nifty goes up and down throughout the day.

What is the second type of stock risk?

The second type of stock risk comes from the business. This risk can be escalated if the business is not doing well. Reasons like the failure of management, poor quarter-by-quarter results, or your misjudgment in picking a company come under business risk.

What are the risks of a bond?

Bonus: A few other risks 1 Social and political risk: Many companies face problems due to social and political risks. For example, Tata Motors shifted its Tata-Nano plant from West-Bengal to Sanand- Gujarat because of political reasons, which cost a lot of money to Tata. 2 Credit Risk: The risk that the company who issued the bond won’t be able to pay the interest or repay the principal at maturity and may find it hard to buy/sell goods. 3 FII/DII investments: The investment by big players can also be counted as the risk involved in stocks. If the foreign direct investment/ domestic investment decreases in a company, and they start selling their stocks, then it might adversely affect the share price of that company. 4 Currency and exchange rate risk: Many companies who deals across nations or the companies involved in import/export may face a problem with increased dollar price. Therefore, the currency and exchange rate fluctuations might increase risk in these companies.

What is FII investment?

FII/DII investments: The investment by big players can also be counted as the risk involved in stocks. If the foreign direct investment/ domestic investment decreases in a company, and they start selling their stocks, then it might adversely affect the share price of that company.

What are the risks of inflation?

Inflationary Risk: With an increase in inflation, the price of raw material will increase, which can affect the production cost. Many companies involved in commodities like oil, soya bean etc are affected a lot by inflationary risk. Further, for few industries, the inflation rate is too high.

How does interest rate affect stocks?

The open market or global market interest rates changes time to time. And this can positively or adversely affect the stocks depending on the direction in which the interest rate is moving. For example, when the interest rates are high, a company might find it difficult to borrow money (at high rates). Further, the bond market declines as the interest rate increases, which may also affect the corporate bonds.

What are some examples of regulatory risks?

For example, Cigarettes, telecommunication, beverages, pharmaceutical and few other industries are highly regulated.

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