Finance Conceptual Chapter 12

1. The excess return required from a risky asset over that required from a risk-free asset is called the:

a. risk premium.

2. The average squared difference between the actual return and the average return is called the:

b. variance.

3. The standard deviation for a set of stock returns can be calculated as the:

c. positive square root of the variance.

4. A symmetric, bell-shaped frequency distribution that is completely defined by its mean and standard deviation is the ___ distribution.

d. normal.

5. The average compound return earned per year over a multi-year period is called the ___ average return.

d. geometric.

6. The return earned in an average year over a multi-year period is called the ___ average return.

a. arithmetic.

7. An efficient capital market is one in which:

e. security prices reflect available information.

8. The notion that actual capital markets, such as the NYSE, are fairly priced is called the:

a. Efficient Markets Hypothesis (EMH).

9. The hypothesis that market prices reflect all available information of every kind is called ___ form efficiency.

b. strong.

10. The hypothesis that market prices reflect all publicly-available information is called ___ form efficiency.

c. semi-strong.

11. The hypothesis that market prices reflect all historical information is called ___ form efficiency.

d. weak.