Question 1

Beta is the slope of the best fit line for the points with coordinates representing the____________ and the____________ for each one of several years.

Accepted Answer

A)  market rate of return; security's rate of return 
B)  risk level of a stock; market rate of return 
C)  rate of return; level of risk for an individual security 
D)  rate of inflation; rate of return for an individual security 
A)  market rate of return; security's rate of return 
B)  risk level of a stock; market rate of return 
C)  rate of return; level of risk for an individual security 
D)  rate of inflation; rate of return for an individual security

Question 2

When the share market has bottomed out and is beginning to recover, the best portfolio to own is the one with a beta of

Accepted Answer

A)  0.0. 
B)  +2.0. 
C)  +1.5. 
D)  +0.5. 
A)  0.0. 
B)  +2.0. 
C)  +1.5. 
D)  +0.5.

Question 3

The Capital Asset Pricing Model (CAPM) is a mathematical model that depicts the

Accepted Answer

A)  positive relationship between risk and return. 
B)  exact price that an investor should be willing to pay for any given investment. 
C)  standard deviation between a risk premium and an investment's expected return. 
D)  difference between a risk- free return and the expected rate of inflation. 
A)  positive relationship between risk and return. 
B)  exact price that an investor should be willing to pay for any given investment. 
C)  standard deviation between a risk premium and an investment's expected return. 
D)  difference between a risk- free return and the expected rate of inflation.

Question 4

A portfolio consisting of four shares is expected to produce returns of 9%, 11%, 3% and 17%, respectively, over the next four years. What is the standard deviation of these expected returns?

Accepted Answer

A)  5.00%. 
B)  33.33%. 
C)  5.77%. 
D)  25.00%. 
A)  5.00%. 
B)  33.33%. 
C)  5.77%. 
D)  25.00%.

Question 5

Investing globally offers better diversification than investing only domestically.

Accepted Answer

A) True 
 B)False

Question 6

The market surrogate is always assigned a beta of 1.0.

Accepted Answer

A) True 
 B)False

Question 7

Beta measures diversifiable risk while standard deviation measures systematic risk.

Accepted Answer

A) True 
 B)False

Question 8

Currency exchange rate risk can be hedged using forwards, futures and options.

Accepted Answer

A) True 
 B)False

Question 9

Small company shares are yielding 15.7% while the Treasury bill has a 4.3% yield and a bank savings account is yielding 3.8%. What is the risk premium on small company shares?

Accepted Answer

A)  15.7%. 
B)  11.9%. 
C)  7.6%. 
D)  11.4%. 
A)  15.7%. 
B)  11.9%. 
C)  7.6%. 
D)  11.4%.

Question 10

Systematic risks

Accepted Answer

A)  can be eliminated by investing in a variety of economic sectors. 
B)  result from random firm- specific events. 
C)  are unique to certain investment vehicles. 
D)  are forces that affect all investment categories. 
A)  can be eliminated by investing in a variety of economic sectors. 
B)  result from random firm- specific events. 
C)  are unique to certain investment vehicles. 
D)  are forces that affect all investment categories.

Question 11

The risk of a portfolio consisting of two uncorrelated assets will be

Accepted Answer

A)  equal to zero. 
B)  equal to the average of the risk level of the two assets. 
C)  greater than the risk of the least risky asset but less than the risk level of the more risky asset. 
D)  greater than zero but less than the risk of the more risky asset. 
A)  equal to zero. 
B)  equal to the average of the risk level of the two assets. 
C)  greater than the risk of the least risky asset but less than the risk level of the more risky asset. 
D)  greater than zero but less than the risk of the more risky asset.

Question 12

Risk can be totally eliminated by combining two assets that are perfectly positively correlated.

Accepted Answer

A) True 
 B)False

Question 13

A portfolio with a beta of 1.06

Accepted Answer

A)  is 6% more risky than a risk- free asset. 
B)  is slightly more risky than the overall market. 
C)  is 106% more risky than the overall market. 
D)  has less risk than the lowest risk security held within that portfolio. 
A)  is 6% more risky than a risk- free asset. 
B)  is slightly more risky than the overall market. 
C)  is 106% more risky than the overall market. 
D)  has less risk than the lowest risk security held within that portfolio.

Question 14

Beta measures

Accepted Answer

A)  diversifiable risk. 
B)  total risk. 
C)  relevant risk. 
D)  the total return. 
A)  diversifiable risk. 
B)  total risk. 
C)  relevant risk. 
D)  the total return.

Question 15

If there is no relationship between the rates of return of two assets over time, these assets are

Accepted Answer

A)  uncorrelated. 
B)  negatively correlated. 
C)  perfectly negatively correlated. 
D)  positively correlated. 
A)  uncorrelated. 
B)  negatively correlated. 
C)  perfectly negatively correlated. 
D)  positively correlated.

Question 16

According to the CAPM, the required rate of a return on a stock can be estimated using only beta and the risk- free rate.

Accepted Answer

A) True 
 B)False

Question 17

Portfolios located on the efficient frontier are preferable to all other portfolios in the feasible set.

Accepted Answer

A) True 
 B)False

Question 18

Portfolio objectives should be established before beginning to invest.

Accepted Answer

A) True 
 B)False

Question 19

Security A has a beta of .99, security B has a beta of 1.2, and security C has a beta of - 1.0. This information indicates that

Accepted Answer

A)  security A has the highest degree of market risk. 
B)  security C would be the best investment if a strong bull market is expected. 
C)  security C has the highest degree of market risk. 
D)  security B has 20% more systematic risk than the market. 
A)  security A has the highest degree of market risk. 
B)  security C would be the best investment if a strong bull market is expected. 
C)  security C has the highest degree of market risk. 
D)  security B has 20% more systematic risk than the market.

Question 20

Standard deviation is a measure that indicates how the price of an individual security responds to market forces.

Accepted Answer

A) True 
 B)False

Beta is the slope of the best fit line for the points with coordinates representing the and the for each one of several years.

When the share market has bottomed out and is beginning to recover, the best portfolio to own is the one with a beta of

The Capital Asset Pricing Model (CAPM) is a mathematical model that depicts the

A portfolio consisting of four shares is expected to produce returns of 9%, 11%, 3% and 17%, respectively, over the next four years. What is the standard deviation of these expected returns?

Investing globally offers better diversification than investing only domestically.

The market surrogate is always assigned a beta of 1.0.

Beta measures diversifiable risk while standard deviation measures systematic risk.

Currency exchange rate risk can be hedged using forwards, futures and options.

Small company shares are yielding 15.7% while the Treasury bill has a 4.3% yield and a bank savings account is yielding 3.8%. What is the risk premium on small company shares?

Systematic risks

The risk of a portfolio consisting of two uncorrelated assets will be

Risk can be totally eliminated by combining two assets that are perfectly positively correlated.

A portfolio with a beta of 1.06

Beta measures

If there is no relationship between the rates of return of two assets over time, these assets are

According to the CAPM, the required rate of a return on a stock can be estimated using only beta and the risk- free rate.

Portfolios located on the efficient frontier are preferable to all other portfolios in the feasible set.

Portfolio objectives should be established before beginning to invest.

Security A has a beta of .99, security B has a beta of 1.2, and security C has a beta of - 1.0. This information indicates that

Standard deviation is a measure that indicates how the price of an individual security responds to market forces.

The Investment Environment

Markets and Transactions

Investment Information and Securities Transactions

Return and Risk

Shares

Analysing Shares

Share Valuation

Technical Analysis, Market Efficiency and Behavioural Finance

Fixed-Income Securities

Bond Valuation

Managed Funds: Professionally Managed Portfolios

Managing Your Own Portfolio

Options: Puts and Calls

Commodities and Financial Futures

Filters

Exam 5: Modern Portfolio Concepts

Beta is the slope of the best fit line for the points with coordinates representing the____________ and the____________ for each one of several years.

When the share market has bottomed out and is beginning to recover, the best portfolio to own is the one with a beta of

The Capital Asset Pricing Model (CAPM) is a mathematical model that depicts the

A portfolio consisting of four shares is expected to produce returns of 9%, 11%, 3% and 17%, respectively, over the next four years. What is the standard deviation of these expected returns?

Investing globally offers better diversification than investing only domestically.

The market surrogate is always assigned a beta of 1.0.

Beta measures diversifiable risk while standard deviation measures systematic risk.

Currency exchange rate risk can be hedged using forwards, futures and options.

Small company shares are yielding 15.7% while the Treasury bill has a 4.3% yield and a bank savings account is yielding 3.8%. What is the risk premium on small company shares?

Systematic risks

The risk of a portfolio consisting of two uncorrelated assets will be

Risk can be totally eliminated by combining two assets that are perfectly positively correlated.

A portfolio with a beta of 1.06

Beta measures

If there is no relationship between the rates of return of two assets over time, these assets are

According to the CAPM, the required rate of a return on a stock can be estimated using only beta and the risk- free rate.

Portfolios located on the efficient frontier are preferable to all other portfolios in the feasible set.

Portfolio objectives should be established before beginning to invest.

Security A has a beta of .99, security B has a beta of 1.2, and security C has a beta of - 1.0. This information indicates that

Standard deviation is a measure that indicates how the price of an individual security responds to market forces.

The Investment Environment

Markets and Transactions

Investment Information and Securities Transactions

Return and Risk

Shares

Analysing Shares

Share Valuation

Technical Analysis, Market Efficiency and Behavioural Finance

Fixed-Income Securities

Bond Valuation

Managed Funds: Professionally Managed Portfolios

Managing Your Own Portfolio

Options: Puts and Calls

Commodities and Financial Futures

Filters

Beta is the slope of the best fit line for the points with coordinates representing the and the for each one of several years.