1. What are the key components of return? Explain each component.

2. Name five sources of risk which investors may face.

3. Define systematic risk and explain how it differs from nonsystematic risk?

4. List the three types of systematic risk. Explain.

5. what is the difference between business and financial risk?

6. Match the following words and phrases to the definitions below:

1) Market risk

2) Liquidity risk

3) political risk

a) That portion of an asset’s total risk caused by discounts and selling commissions that must be given up to sell an asset quickly.

b) Arises because alternating bull and bear market conditions tend to affect all securities systematically.

c) That portion of an asset’s total variability of return caused by changes in the political environment.

TRUE/ FALSE

7. By investing in different securities, an investor can lower his exposure to risk.

8. The greater the dispersion of possible returns, the riskier is the investment.

9. Beta is a measurement of the relationship between a security's returns and the general market's returns.

10. Beta is a measure of systematic risk.

PROBLEMS

1.The Quinn’s company had the following annual return over the past five years:

Year Return

2013 10%

2014 -5

2015 14

2016 -6

2017 20

Determine Quinn’s average return and standard deviation of returns over the past 5 years.

2. Mr.Ali wants to buy Ant company stock which is currently selling at OMR 60 without dividend payment. There is equal probability for the Ant stock to be sold at OMR 65 and OMR 80 during the next year. What is the expected return and risk if 300 shares are bought?