Security and Different Types Essay

4231 Words Apr 13th, 2014 17 Pages
5 points) Shareholders of Exxon Oil Company face a variety of risks in holding its shares. If the economy falters, people tend to travel less and so there is less demand from the airlines industry for Exxon's fuels. This type of risk that Exxon's shareholders bear is
Your Answer Score Explanation
Specific/Idiosyncratic Risk.
Systematic/Market Risk. Correct 5.00 Correct. You have a good intuition for different types of risks.
Total 5.00 / 5.00
Question Explanation

A fundamental question of different types of risks.

5 points) Suppose there are three securities (A,B, and C) to choose from, and next year the economy will be in an expansion, normal, or recession state with probabilities 0.30, 0.35, and 0.35, respectively. The
…show more content…
5 points) Shareholders of Exxon Oil Company face a variety of risks in holding its shares. If the economy falters, people tend to travel less and so there is less demand from the airlines industry for Exxon's fuels. This type of risk that Exxon's shareholders bear is
Your Answer Score Explanation
Specific/Idiosyncratic Risk.
Systematic/Market Risk. Correct 5.00 Correct. You have a good intuition for different types of risks.
Total 5.00 / 5.00
Question Explanation

A fundamental question of different types of risks.

5 points) Suppose there are three securities (A,B, and C) to choose from, and next year the economy will be in an expansion, normal, or recession state with probabilities 0.30, 0.35, and 0.35, respectively. The returns (%) on the securitiies in these states are as follows: Security A {expansion = +10, normal = +8, recession = +6}; Security B {+25,+10,-10}; Security C {+7.5,+7.5,+7.5}. If the investor is risk neutral (means that she does not care/worry about risk), which of these three securities would she buy?
Your Answer Score Explanation
Security B.
Security A. Correct 5.00 Correct. You know that she will choose the security with the highest expected return.
Security C.
None of them.
Total 5.00 / 5.00
Question Explanation

This is a question that makes you calculate expected returns and, given the investor's attitude

Related Documents