Which of the following is a way banks reduce risk a Screenin

Which of the following is a way banks reduce risk?

a) Screening firms.

b) Evaluating firms.

c) Monitoring firms.

d) Pooling money into portfolios.

An investment that provides a high average annual return is one that:

a) is generally more risky.

b) has no risk.

c) is generally very safe.

d) has an unknown level of risk.

In which of the following is a risk-tolerant investor most likely to invest in?

a) CDs

b) Savings accounts

c) A-rated bonds

d) Growth stocks

What would be the price of a perpetuity bond that has a $100 interest payment and a 4% yield?

) $1,000

b) $2,000

c) $2,500

d) $4,000

Solution

ans d.

P.V. of perpetuity = C/ r where C - perpetual cash flow ; r = yield rate

= 100/ 0.04 = $2500

hence, option c is the correct option

ans c. option d.

a risk tolerant investor is highly likely to invest in growth stocks among the following options as all the other are safer options and our investor can tolerate some risk so he will invest in growth stocks.

ans b. option a.

an investment that provides high annual return would surely be at high risk as we know that risk and return move opposite . high risk means less return and vice-versa. however the investor will surely not invest in something whose risk is unknown .

ans a. option d.

banks reduce risk by investing money into portfolios as they lead to diversification whereas even after screening, evaluating and monitoring the firms , the risk remains but portfolio diversification will surely lead to reduction in risk