Question 1

Which of these is the investor's combination of securities that achieves the highest expected return for a given risk level?

Accepted Answer

A)  efficient portfolio 
B)  modern portfolio 
C)  optimal portfolio 
D)  total portfolio 
A)  efficient portfolio 
B)  modern portfolio 
C)  optimal portfolio 
D)  total portfolio C

Question 2

Which of the following is the concept and procedure for combining securities into a portfolio to minimize risk?

Accepted Answer

A)  firm specific theory 
B)  modern portfolio theory 
C)  optimal portfolio theory 
D)  total portfolio theory 
A)  firm specific theory 
B)  modern portfolio theory 
C)  optimal portfolio theory 
D)  total portfolio theory B

Question 3

Which of the following is incorrect?

Accepted Answer

A)  It is possible to combine assets that all move in the exact same fashion over time and gain the benefits of diversification. 
B)  Adding long-term Treasury bonds to a stock portfolio will reduce the risk of the portfolio. 
C)  The optimal portfolio provides the highest return for the investor's desired risk. 
D)  All of these choices are correct. 
A)  It is possible to combine assets that all move in the exact same fashion over time and gain the benefits of diversification. 
B)  Adding long-term Treasury bonds to a stock portfolio will reduce the risk of the portfolio. 
C)  The optimal portfolio provides the highest return for the investor's desired risk. 
D)  All of these choices are correct. A

Question 4

Which of the following is correct?

Accepted Answer

A)  Investors can reduce the risk in their portfolio by investing in international stocks since they tend to have low correlation with our own stock market. 
B)  Combining both stocks and bonds will likely reduce risk in a portfolio because the two assets have low correlation. 
C)  Your optimal portfolio is an efficient portfolio with your desired risk level. 
D)  All of these choices are correct. 
A)  Investors can reduce the risk in their portfolio by investing in international stocks since they tend to have low correlation with our own stock market. 
B)  Combining both stocks and bonds will likely reduce risk in a portfolio because the two assets have low correlation. 
C)  Your optimal portfolio is an efficient portfolio with your desired risk level. 
D)  All of these choices are correct.

Question 5

A stock has an expected return of 15 percent and a standard deviation of 20 percent. Long-term Treasury bonds have an expected return of 9 percent and a standard deviation of 11 percent. Given this data, which of the following statements is correct?

Accepted Answer

A)  The two assets have the same coefficient of variation. 
B)  The stock investment has a better risk-return trade-off. 
C)  The bond investment has a better risk-return trade-off. 
D)  The stock investment and the bond investment have the same diversifiable risk. 
A)  The two assets have the same coefficient of variation. 
B)  The stock investment has a better risk-return trade-off. 
C)  The bond investment has a better risk-return trade-off. 
D)  The stock investment and the bond investment have the same diversifiable risk.

Question 6

If you own 1,000 shares of Alaska Corporation at $19.95, 250 shares of Best Company at $17.50, and 250 shares of Motor Company at $2.50, what are the portfolio weights of each stock?

Accepted Answer

A)  Alaska = 0.1000, Best = 0.2500, Motor = 0.2500 
B)  Alaska = 0.4994, Best = 0.4380, Motor = 0.0626 
C)  Alaska = 0.7996, Best = 0.1754, Motor = 0.0250 
D)  Alaska = 0.1995, Best = 0.1750, Motor = 0.0250 
A)  Alaska = 0.1000, Best = 0.2500, Motor = 0.2500 
B)  Alaska = 0.4994, Best = 0.4380, Motor = 0.0626 
C)  Alaska = 0.7996, Best = 0.1754, Motor = 0.0250 
D)  Alaska = 0.1995, Best = 0.1750, Motor = 0.0250

Question 7

Which of these includes any capital gain (or loss) that occurred as well as any income that you received from a specific investment?

Accepted Answer

A)  average return 
B)  dollar return 
C)  market return 
D)  portfolio 
A)  average return 
B)  dollar return 
C)  market return 
D)  portfolio

Question 8

The following table shows your stock positions at the beginning of the year, the dividends that each stock paid during the year, and the stock prices at the end of the year. What is your portfolio percentage return?
$$\begin{array} { l r c c c } 
& & \text { Beginning of } & \text { Dividend } & \text { End of } \
\text { Company } & \text { Shares } & \text { Year Price } & \text { per Share } & \text { Year Price } \
\text { W } & 500 & \$ 5.00 & \$ 0.50 & \$ 4.00 \
\text { P } & 100 & \$ 15.00 & \$ 1.00 & \$ 15.25 \
\text { J } & 200 & \$ 25.00 & & \$ 22.00 \
D & 200 & \$ 30.00 & \$ 2.00 & \$ 33.50
\end{array}$$

Accepted Answer

A)  2.50 percent 
B)  5.83 percent 
C)  10.50 percent 
D)  13.83 percent 
A)  2.50 percent 
B)  5.83 percent 
C)  10.50 percent 
D)  13.83 percent

Question 9

Which of the following statements is correct?

Accepted Answer

A)  A dominant portfolio has the best risk-return relationship as compared to other portfolios. 
B)  When an investment achieves a high return it always has a high level of risk. 
C)  A low standard deviation means that the investment is less likely to achieve high returns, which means that it is more risky. 
D)  None of these choices are correct. 
A)  A dominant portfolio has the best risk-return relationship as compared to other portfolios. 
B)  When an investment achieves a high return it always has a high level of risk. 
C)  A low standard deviation means that the investment is less likely to achieve high returns, which means that it is more risky. 
D)  None of these choices are correct.

Question 10

Which of the following statements is correct regarding total risk?

Accepted Answer

A)  A conglomerate will have more total risk than a firm that has one line of business. 
B)  All firms have about the same total risk because they are all exposed to the same market risk. 
C)  Total risk can be quantified by measuring the covariance between the firm and the overall market. 
D)  None of these choices are correct. 
A)  A conglomerate will have more total risk than a firm that has one line of business. 
B)  All firms have about the same total risk because they are all exposed to the same market risk. 
C)  Total risk can be quantified by measuring the covariance between the firm and the overall market. 
D)  None of these choices are correct.

Question 11

Sprint Nextel Corp. stock ended the previous year at $25.00 per share. It paid a $2.57 per share dividend last year. It ended last year at $18.89. If you owned 650 shares of Sprint, what was your dollar return and percent return?

Accepted Answer

A)  $2,960, 11.13 percent 
B)  −$4,960, −16.13 percent 
C)  −$3,960, −15.13 percent 
D)  −$2,301, −14.16 percent 
A)  $2,960, 11.13 percent 
B)  −$4,960, −16.13 percent 
C)  −$3,960, −15.13 percent 
D)  −$2,301, −14.16 percent

Question 12

Which of the following statements is correct?

Accepted Answer

A)  Uncorrelated assets have a correlation of −1.0. 
B)  Most common stocks are positively correlated with each other because they are impacted by the same economic factors. 
C)  We can typically add many stocks together to fully eliminate the market risk in a portfolio. 
D)  None of these choices are correct. 
A)  Uncorrelated assets have a correlation of −1.0. 
B)  Most common stocks are positively correlated with each other because they are impacted by the same economic factors. 
C)  We can typically add many stocks together to fully eliminate the market risk in a portfolio. 
D)  None of these choices are correct.

Question 13

Determine which one of these three portfolios dominates another. Name the dominated portfolio and the portfolio that dominates it. Portfolio Blue has an expected return of 13 percent and risk of 17 percent. The expected return and risk of portfolio Yellow are 15 percent and 19 percent; and for the Purple portfolio are 12 percent and 18 percent.

Accepted Answer

A)  Portfolio Blue dominates portfolio Yellow. 
B)  Portfolio Blue dominates portfolio Purple. 
C)  Portfolio Purple dominates portfolio Blue. 
D)  Portfolio Purple dominates portfolio Yellow. 
A)  Portfolio Blue dominates portfolio Yellow. 
B)  Portfolio Blue dominates portfolio Purple. 
C)  Portfolio Purple dominates portfolio Blue. 
D)  Portfolio Purple dominates portfolio Yellow.

Question 14

Compute the standard deviation of the five monthly returns for PG&E: 1.25 percent, −1.50 percent, 4.25 percent, 3.75 percent, and 1.98 percent.

Accepted Answer

A)  1.876 percent 
B)  1.946 percent 
C)  2.046 percent 
D)  2.287 percent 
A)  1.876 percent 
B)  1.946 percent 
C)  2.046 percent 
D)  2.287 percent

Question 15

JoJo's portfolio's return is 12 percent. She is invested in Cisco and IBM which had returns of 15 percent and 9 percent respectively. What percentage of JoJo's assets are invested in each firm?

Accepted Answer

A)  40 percent in Cisco and 60 percent in IBM 
B)  50 percent in Cisco and 50 percent in IBM 
C)  30 percent in Cisco and 70 percent in IBM 
D)  unable to determine with the data provided 
A)  40 percent in Cisco and 60 percent in IBM 
B)  50 percent in Cisco and 50 percent in IBM 
C)  30 percent in Cisco and 70 percent in IBM 
D)  unable to determine with the data provided

Question 16

Consider the following correlations:
$$\begin{array} { l r r r r } 
\text { IBM } & \text { IBM } & \text { Apple } & \text { Disney } \
\text { Apple } & - 0.2 & 1 & \
\text { Dirney } & 0.3 & - 0.7 & 1
\end{array}$$
Given this data, which of the following is most preferable if an investor can only select one pair of companies?

Accepted Answer

A)  Apple and IBM 
B)  Disney and IBM 
C)  Disney and Apple 
D)  It does not matter which two are selected-there is no preference. 
A)  Apple and IBM 
B)  Disney and IBM 
C)  Disney and Apple 
D)  It does not matter which two are selected-there is no preference.

Question 17

Which statement is true?

Accepted Answer

A)  The larger the standard deviation, the lower the total risk. 
B)  The larger the standard deviation, the higher the total risk. 
C)  The larger the standard deviation, the more portfolio risk. 
D)  The standard deviation is not an indication of total risk. 
A)  The larger the standard deviation, the lower the total risk. 
B)  The larger the standard deviation, the higher the total risk. 
C)  The larger the standard deviation, the more portfolio risk. 
D)  The standard deviation is not an indication of total risk.

Question 18

Which of the following statements is correct?

Accepted Answer

A)  A single stock has a lot of diversifiable risk. 
B)  A single stock has more market risk than a diversified portfolio of stocks. 
C)  Bonds and stocks have a high correlation because they are both financial assets. 
D)  None of these choices are correct. 
A)  A single stock has a lot of diversifiable risk. 
B)  A single stock has more market risk than a diversified portfolio of stocks. 
C)  Bonds and stocks have a high correlation because they are both financial assets. 
D)  None of these choices are correct.

Question 19

Which of the following is a measurement of the co-movement between two variables that ranges between −1 and +1?

Accepted Answer

A)  coefficient of variation 
B)  correlation 
C)  standard deviation 
D)  total risk 
A)  coefficient of variation 
B)  correlation 
C)  standard deviation 
D)  total risk

Question 20

To find the percentage return of an investment

Accepted Answer

A)  multiply the dollar return by the investment's value at the beginning of the period. 
B)  divide the dollar return by the investment's value at the beginning of the period. 
C)  multiply the dollar return by the investment's value at the end of the period. 
D)  divide the dollar return by the investment's value at the end of the period. 
A)  multiply the dollar return by the investment's value at the beginning of the period. 
B)  divide the dollar return by the investment's value at the beginning of the period. 
C)  multiply the dollar return by the investment's value at the end of the period. 
D)  divide the dollar return by the investment's value at the end of the period.

Which of these is the investor's combination of securities that achieves the highest expected return for a given risk level?

Which of the following is the concept and procedure for combining securities into a portfolio to minimize risk?

Which of the following is incorrect?

Which of the following is correct?

A stock has an expected return of 15 percent and a standard deviation of 20 percent. Long-term Treasury bonds have an expected return of 9 percent and a standard deviation of 11 percent. Given this data, which of the following statements is correct?

If you own 1,000 shares of Alaska Corporation at $19.95, 250 shares of Best Company at $17.50, and 250 shares of Motor Company at $2.50, what are the portfolio weights of each stock?

Which of these includes any capital gain (or loss) that occurred as well as any income that you received from a specific investment?

Which of the following statements is correct?

Which of the following statements is correct regarding total risk?

Sprint Nextel Corp. stock ended the previous year at $25.00 per share. It paid a $2.57 per share dividend last year. It ended last year at $18.89. If you owned 650 shares of Sprint, what was your dollar return and percent return?

Which of the following statements is correct?

Compute the standard deviation of the five monthly returns for PG&E: 1.25 percent, −1.50 percent, 4.25 percent, 3.75 percent, and 1.98 percent.

JoJo's portfolio's return is 12 percent. She is invested in Cisco and IBM which had returns of 15 percent and 9 percent respectively. What percentage of JoJo's assets are invested in each firm?

Consider the following correlations: IBM IBM Apple Disney Apple -0.2 1 Dirney 0.3 -0.7 1 Given this data, which of the following is most preferable if an investor can only select one pair of companies?

Which statement is true?

Which of the following statements is correct?

Which of the following is a measurement of the co-movement between two variables that ranges between −1 and +1?

To find the percentage return of an investment

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 9: Characterizing Risk and Return

Which of these is the investor's combination of securities that achieves the highest expected return for a given risk level?

Which of the following is the concept and procedure for combining securities into a portfolio to minimize risk?

Which of the following is incorrect?

Which of the following is correct?

A stock has an expected return of 15 percent and a standard deviation of 20 percent. Long-term Treasury bonds have an expected return of 9 percent and a standard deviation of 11 percent. Given this data, which of the following statements is correct?

If you own 1,000 shares of Alaska Corporation at $19.95, 250 shares of Best Company at $17.50, and 250 shares of Motor Company at $2.50, what are the portfolio weights of each stock?

Which of these includes any capital gain (or loss) that occurred as well as any income that you received from a specific investment?

Which of the following statements is correct?

Which of the following statements is correct regarding total risk?

Sprint Nextel Corp. stock ended the previous year at $25.00 per share. It paid a $2.57 per share dividend last year. It ended last year at $18.89. If you owned 650 shares of Sprint, what was your dollar return and percent return?

Which of the following statements is correct?

Compute the standard deviation of the five monthly returns for PG&E: 1.25 percent, −1.50 percent, 4.25 percent, 3.75 percent, and 1.98 percent.

JoJo's portfolio's return is 12 percent. She is invested in Cisco and IBM which had returns of 15 percent and 9 percent respectively. What percentage of JoJo's assets are invested in each firm?

Consider the following correlations: IBM IBM Apple Disney Apple -0.2 1 Dirney 0.3 -0.7 1 Given this data, which of the following is most preferable if an investor can only select one pair of companies?

Which statement is true?

Which of the following statements is correct?

Which of the following is a measurement of the co-movement between two variables that ranges between −1 and +1?

To find the percentage return of an investment

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters