Question 1

In the case of a portfolio of N-stocks, the formula for portfolio variance contains:

Accepted Answer

A)  N variance terms 
B)  N(N - 1)/2 variance terms 
C)  N2 variance terms 
D)  None of the above 
A)  N variance terms 
B)  N(N - 1)/2 variance terms 
C)  N2 variance terms 
D)  None of the above

Question 2

The standard statistical measures of spread are beta and covariance.

Accepted Answer

A) True 
 B)False

Question 3

The covariance between YOHO stock and the S&P 500 is .05. The standard deviation of the stock market is 20%. What is the beta of YOHO?

Accepted Answer

A)  0.00 
B)  1.00 
C)  1.25 
D)  1.42 
A)  0.00 
B)  1.00 
C)  1.25 
D)  1.42

Question 4

The beta of Nestle measured relative to its home market is:

Accepted Answer

A)  0.17 
B)  1.54 
C)  1.01 
D)  none of the above 
A)  0.17 
B)  1.54 
C)  1.01 
D)  none of the above

Question 5

The range of values that correlation coefficients can take can be:

Accepted Answer

A)  zero to +1 
B)  -1 to +1 
C)  - infinity to +infinity 
D)  zero to + infinity 
A)  zero to +1 
B)  -1 to +1 
C)  - infinity to +infinity 
D)  zero to + infinity

Question 6

Stock P and stock Q have had annual returns of -10%, 12%, 28% and 8%, 13%, 24%
Respectively. Calculate the covariance of return between the securities.

Accepted Answer

A)  -149 
B)  +149 
C)  100 
D)  None of the above 
A)  -149 
B)  +149 
C)  100 
D)  None of the above

Question 7

Higher the standard deviation of a stock higher is its beta.

Accepted Answer

A) True 
 B)False

Question 8

Spill Oil Company's stocks had -8%, 11% and 24% rates of return during the last three years respectively; calculate the average rate of return for the stock.

Accepted Answer

A)  8% per year 
B)  9% per year 
C)  11% per year 
D)  None of the above 
A)  8% per year 
B)  9% per year 
C)  11% per year 
D)  None of the above

Question 9

For a two-stock portfolio, the maximum reduction in risk occurs when the correlation coefficient between the two stocks is:

Accepted Answer

A)  +1 
B)  -0.5 
C)  -1 
D)  0 
A)  +1 
B)  -0.5 
C)  -1 
D)  0

Question 10

Which portfolio had the highest standard deviation during the period between 1900 and
2006?

Accepted Answer

A)  Common stocks 
B)  Government bonds 
C)  Treasury bills 
D)  None of the given answers 
A)  Common stocks 
B)  Government bonds 
C)  Treasury bills 
D)  None of the given answers

Question 11

The "beta" is a measure of:

Accepted Answer

A)  Unique risk 
B)  Total risk 
C)  Market risk 
D)  None of the above 
A)  Unique risk 
B)  Total risk 
C)  Market risk 
D)  None of the above

Question 12

The standard deviation of the UK market during the period from 2001 through 2006 was: (Approximately)

Accepted Answer

A)  12.3% 
B)  14.1% 
C)  9.8% 
D)  None of the above 
A)  12.3% 
B)  14.1% 
C)  9.8% 
D)  None of the above

Question 13

The average beta of all stocks in the market is zero.

Accepted Answer

A) True 
 B)False

Question 14

Market risk is also called:
I. systematic risk, II) undiversifiable risk,
III. firm specific risk.

Accepted Answer

A)  I only 
B)  II only 
C)  III only 
D)  I and II only 
A)  I only 
B)  II only 
C)  III only 
D)  I and II only

Question 15

One dollar invested in a portfolio of U.S. government bonds in 1900 would have grown in nominal value by the end of year 2006 to:

Accepted Answer

A)  $719 
B)  $66 
C)  $176 
D)  $2.80 
A)  $719 
B)  $66 
C)  $176 
D)  $2.80

Question 16

If the standard deviation of returns of the market is 20% and the beta of a well-diversified portfolio is 1.5, calculate the standard deviation of the portfolio:

Accepted Answer

A)  30% 
B)  20% 
C)  10% 
D)  none of the above 
A)  30% 
B)  20% 
C)  10% 
D)  none of the above

Question 17

Which of the following provides a correct measure of the opportunity cost of capital regardless of the timing of the cash flows?

Accepted Answer

A)  Arithmetic average 
B)  Geometric average 
C)  Hyperbolic mean 
D)  None of the above 
A)  Arithmetic average 
B)  Geometric average 
C)  Hyperbolic mean 
D)  None of the above

Question 18

The beta of market portfolio is:

Accepted Answer

A)  + 1.0 
B)  +0.5 
C)  0 
D)  -1.0 
A)  + 1.0 
B)  +0.5 
C)  0 
D)  -1.0

Exam 7: Introduction to Risk and Return

In the case of a portfolio of N-stocks, the formula for portfolio variance contains:

The standard statistical measures of spread are beta and covariance.

The covariance between YOHO stock and the S&P 500 is .05. The standard deviation of the stock market is 20%. What is the beta of YOHO?

The beta of Nestle measured relative to its home market is:

The range of values that correlation coefficients can take can be:

Stock P and stock Q have had annual returns of -10%, 12%, 28% and 8%, 13%, 24% Respectively. Calculate the covariance of return between the securities.

Higher the standard deviation of a stock higher is its beta.

Spill Oil Company's stocks had -8%, 11% and 24% rates of return during the last three years respectively; calculate the average rate of return for the stock.

For a two-stock portfolio, the maximum reduction in risk occurs when the correlation coefficient between the two stocks is:

Which portfolio had the highest standard deviation during the period between 1900 and 2006?

The "beta" is a measure of:

The standard deviation of the UK market during the period from 2001 through 2006 was: (Approximately)

The average beta of all stocks in the market is zero.

Market risk is also called: I. systematic risk, II) undiversifiable risk, III. firm specific risk.

One dollar invested in a portfolio of U.S. government bonds in 1900 would have grown in nominal value by the end of year 2006 to:

If the standard deviation of returns of the market is 20% and the beta of a well-diversified portfolio is 1.5, calculate the standard deviation of the portfolio:

Which of the following provides a correct measure of the opportunity cost of capital regardless of the timing of the cash flows?

The beta of market portfolio is:

Goals and Governance of the Firm

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

Investment, Strategy, and Economic Rents

Agency Problems, Compensation, and Performance Measurement

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

Filters