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US CMA Part 2 Risk and Return — practice questions

Explore 23 free Risk and Return questions in US CMA Part 2 Finance. Open each question or exercise to read its content, reference answers and available explanation.

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Risk and Return questions and exercises with answers

Showing questions 1–23 of 23.

In investment terms, return is defined as the benefit or profit the investor:Read the answer and worked solution →The most commonly used measure of volatility of returns in finance is the:Read the answer and worked solution →Systematic risk is described as the risk of holding the:Read the answer and worked solution →Portfolio diversification is described as protecting an investor from being significantly impacted by:Read the answer and worked solution →Which of these is given as an example of unsystematic risk?Read the answer and worked solution →Alongside a lawsuit and a new product, which is given as an example of unsystematic risk?Read the answer and worked solution →The capital asset pricing model is abbreviated as:Read the answer and worked solution →In the CAPM equation, Re stands for the expected return of the:Read the answer and worked solution →In the CAPM equation, Rf stands for the:Read the answer and worked solution →In the CAPM equation, Rm stands for the expected return of the:Read the answer and worked solution →CAPM rests on the idea that investors holding stocks with higher systematic risk should be:Read the answer and worked solution →The relevant risk for investors is described as the risk that is:Read the answer and worked solution →A correlation coefficient is described as showing how two variables move:Read the answer and worked solution →A single company's accounting scandal is a risk that diversification can:Read the answer and worked solution →A market-wide crash affecting nearly every stock is best classified as:Read the answer and worked solution →Beta is relevant to investors because it measures the risk that is:Read the answer and worked solution →Under CAPM, an asset with higher systematic risk should offer an expected return that is:Read the answer and worked solution →An investor holding one stock rather than many is most exposed to which avoidable risk?Read the answer and worked solution →Pull the rope to the right riskRead the answer and worked solution →Sort the CAPM symbolsRead the answer and worked solution →Stack the risk termsRead the answer and worked solution →Match each risk termRead the answer and worked solution →Complete the risk rulesRead the answer and worked solution →

Worked practice questions

In investment terms, return is defined as the benefit or profit the investor:

  1. Expects from an expenditure
  2. Pays to the stockbroker
  3. Owes to the tax office
  4. Loses in a bad year
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Correct answer: A. Expects from an expenditure

1. Return is defined from the investor's point of view. 2. The concept of return is described as fairly straightforward. 3. Return is the benefit, or profit, the investor expects. 4. That expectation is attached to an expenditure. _Source: OpenStax Principles of Finance (CC BY 4.0), Ch 15 'Risk, Return, and Capital Market Theory'_

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The most commonly used measure of volatility of returns in finance is the:

  1. Largest single loss
  2. Standard deviation
  3. Simple average
  4. Median return
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Correct answer: B. Standard deviation

1. Volatility needs a single summary number. 2. Returns vary from year to year. 3. The most commonly used measure of volatility of returns is the standard deviation. 4. It is computed from the returns themselves. _Source: OpenStax Principles of Finance (CC BY 4.0), Ch 15 'Risk, Return, and Capital Market Theory'_

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Systematic risk is described as the risk of holding the:

  1. Market portfolio
  2. Single best stock
  3. Government bond
  4. Company payroll
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Correct answer: A. Market portfolio

1. Systematic risk is defined against the whole market. 2. Risk splits into systematic and unsystematic parts. 3. Systematic risk is the risk of holding the market portfolio. 4. It cannot be diversified away. _Source: OpenStax Principles of Finance (CC BY 4.0), Ch 15 'Risk, Return, and Capital Market Theory'_

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