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Question 1 of 10
1. Question
The most commonly accepted definition of risk is one that involves a wellknown statistical measure known as the?
I. Wild card
II. Outcome
III. Variance
IV. DenominatorCorrect
The most commonly accepted definition of risk is one that involves a wellknown statistical measure known as the variance.
Incorrect
The most commonly accepted definition of risk is one that involves a wellknown statistical measure known as the variance.

Question 2 of 10
2. Question
Investors quantify risk in terms of the variance of an asset’s expected return. The variance of a random variable is a measure of which of the following?
I. The common denominator of an unexpected variable
II. The hazard, peril, exposure to loss or injury
III. The dispersion of the possible outcomes around the expected value.
IV. The statistical outcome of both capital gain and lossCorrect
Investors quantify risk in terms of the variance of an asset’s expected return. The variance of a random variable is a measure of the dispersion of the possible outcomes around the expected value.
Incorrect
Investors quantify risk in terms of the variance of an asset’s expected return. The variance of a random variable is a measure of the dispersion of the possible outcomes around the expected value.

Question 3 of 10
3. Question
Investors, however, do not view possible returns above the expected return as an unfavorable outcome. In fact, such outcomes are favorable. Because of this, some researchers have argued that measures of risk should not consider which of the following?
I. The possible loss above the expected loss.
II. The possible loss below the expected loss.
III. The possible returns below the expected return.
IV. The possible returns above the expected return.Correct
Investors, however, do not view possible returns above the expected return as an unfavorable outcome. In fact, such outcomes are favorable. Because of this, some researchers have argued that measures of risk should not consider the possible returns above the expected return.
Incorrect
Investors, however, do not view possible returns above the expected return as an unfavorable outcome. In fact, such outcomes are favorable. Because of this, some researchers have argued that measures of risk should not consider the possible returns above the expected return.

Question 4 of 10
4. Question
In the case of bonds, investors gauge the which of the following risk(s) of an entity by looking at the credit ratings assigned to issues by rating companies, popularly referred to as rating agencies?
I. Liquidity risk
II. Downgrade risk
III. Default risk
IV. Credit riskCorrect
In the case of bonds, investors gauge the credit risk of an entity by looking at the credit ratings assigned to issues by rating companies, popularly referred to as rating agencies.
Incorrect
In the case of bonds, investors gauge the credit risk of an entity by looking at the credit ratings assigned to issues by rating companies, popularly referred to as rating agencies.

Question 5 of 10
5. Question
Which of the following is(are) rating agencies in the United States?
I. Moody’s Investors Service
II. Standard & Poor’s
III. Leeman Brothers
IV. FitchCorrect
There are three rating agencies in the United States: Moody’s Investors Service, Standard & Poor’s, and Fitch.
Incorrect
There are three rating agencies in the United States: Moody’s Investors Service, Standard & Poor’s, and Fitch.

Question 6 of 10
6. Question
Which of the following is the risk that a bond will be downgraded?
I. Bond risk
II. Liquidity risk
III. Default risk
IV. Downgrade riskCorrect
When the credit rating of a bond is lowered by a rating agency, this action by a rating agency is referred to as the downgrading of a bond. The risk that a bond will be downgraded is called downgrade risk.
Incorrect
When the credit rating of a bond is lowered by a rating agency, this action by a rating agency is referred to as the downgrading of a bond. The risk that a bond will be downgraded is called downgrade risk.

Question 7 of 10
7. Question
When an investor wants to sell an asset, he or she is concerned with which of the following?
I. The buyers
II. The investors
III. The price
IV. The value of the assetCorrect
When an investor wants to sell an asset, he or she is concerned whether the price that can be obtained from dealers is close to the true value of the asset.
Incorrect
When an investor wants to sell an asset, he or she is concerned whether the price that can be obtained from dealers is close to the true value of the asset.

Question 8 of 10
8. Question
If foreign currency capital gains and losses raise the standard deviation of the foreign bond return, perhaps there is a case for doing which of the following?
I. Unhedging the currency risk.
II. Hedging the currency risk.
III. Shorting the exchange rate.
IV. Longing the exchange rate.Correct
If foreign currency capital gains and losses raise the standard deviation of the foreign bond return, perhaps there is a case for hedging the currency risk.
Incorrect
If foreign currency capital gains and losses raise the standard deviation of the foreign bond return, perhaps there is a case for hedging the currency risk.

Question 9 of 10
9. Question
Hedging the currency risk does raise the correlation between which of the following?
I. the foreign bond
II. U.S. bonds
III. U.S. stocks
IV. Non U.S. Dollar Government Bond IndexCorrect
Hedging the currency risk does raise the correlation between the foreign bond and U.S. bonds and stocks.
Incorrect
Hedging the currency risk does raise the correlation between the foreign bond and U.S. bonds and stocks.

Question 10 of 10
10. Question
Which of the following actions would an investor do if he/she is concerned about the volatility of foreign bond investments?
I. Diversify the bond investment portfolio
II. Short the foreign bond investment
III. Hedge the foreign bonds
IV. Invest on other U.S. bondsCorrect
There is a strong case for hedging the foreign bonds if the investor is concerned about the volatility of foreign bond investments, since hedging reduces that volatility quite dramatically.
Incorrect
There is a strong case for hedging the foreign bonds if the investor is concerned about the volatility of foreign bond investments, since hedging reduces that volatility quite dramatically.