Question 1

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 B

Question 2

The risk that cannot be eliminated by diversification is called market risk.

Accepted Answer

A) True 
 B)False  True

Question 3

Stock M and Stock N have had the following returns for the past three years of -12%, 10%, 32%; and 15%, 6%, 24% respectively. Calculate the covariance between the two securities.

Accepted Answer

A)  -99 
B)  +99 
C)  +250 
D)  None of the above 
A)  -99 
B)  +99 
C)  +250 
D)  None of the above B

Question 4

The standard statistical measures of spread are beta and covariance.

Accepted Answer

A) True 
 B)False

Question 5

What has been the standard deviation of returns of common stocks during the period between 1900 and 2006?

Accepted Answer

A)  19.8% 
B)  33.4% 
C)  8.1% 
D)  7.8% 
A)  19.8% 
B)  33.4% 
C)  8.1% 
D)  7.8%

Question 6

Which portfolio had the highest average annual return in real terms between 1900 and 2006?

Accepted Answer

A)  Portfolio of U.S. Common stocks 
B)  Portfolio of U.S. government bonds 
C)  Portfolio of Treasury bills 
D)  None of the given answers 
A)  Portfolio of U.S. Common stocks 
B)  Portfolio of U.S. government bonds 
C)  Portfolio of Treasury bills 
D)  None of the given answers

Question 7

A portfolio with a beta of one offers an expected return equal to the market risk premium.

Accepted Answer

A) True 
 B)False

Question 8

Given the following data: risk-free rate = 4%, average risk premium = 7.7%. Calculate the required rate of return:

Accepted Answer

A)  5.6% 
B)  7.6% 
C)  11.7% 
D)  None of the given answers 
A)  5.6% 
B)  7.6% 
C)  11.7% 
D)  None of the given answers

Question 9

High standard deviation always translates into high beta.

Accepted Answer

A) True 
 B)False

Question 10

How can individual investors diversify?

Accepted Answer

One of the simplest ways for i

Question 11

Which portfolio has had the highest average risk premium during the period 1900-2006?

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 12

As the number of stocks in a portfolio is increased:

Accepted Answer

A)  Unique risk decreases and approaches to zero 
B)  Market risk decreases 
C)  Unique risk decreases and becomes equal to market risk 
D)  Total risk approaches to zero 
A)  Unique risk decreases and approaches to zero 
B)  Market risk decreases 
C)  Unique risk decreases and becomes equal to market risk 
D)  Total risk approaches to zero

Question 13

Briefly explain the term "variance" of the returns.

Accepted Answer

Variance is a standard statistical measu

Question 14

What has been the average annual nominal rate of interest on Treasury bills over the past 107 years (1900 - 2006)?

Accepted Answer

A)  Less than 1% 
B)  Between 1% and 2% 
C)  Between 2% and 3% 
D)  Greater than 3% 
A)  Less than 1% 
B)  Between 1% and 2% 
C)  Between 2% and 3% 
D)  Greater than 3%

Question 15

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 16

The risk that cannot be eliminated by diversification is called unique risk.

Accepted Answer

A) True 
 B)False

Question 17

Briefly explain the concept of value additivity.

Accepted Answer

If the capital market establishes a valu

Question 18

Macro Corporation has had the following returns for the past three years, -10%, 10%, and 30%. Calculate the standard deviation of the returns.

Accepted Answer

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

Question 19

Stock A has an expected return of 10% per year and stock B has an expected return of 20%. If 40% of the funds are invested in stock A, and the rest in stock B, what is the expected return on the portfolio of stock A and stock B?

Accepted Answer

A)  10% 
B)  20% 
C)  16% 
D)  None of the above 
A)  10% 
B)  20% 
C)  16% 
D)  None of the above

Question 20

If the standard deviation is 19.8% and the number of observations is 107, what is the standard error?

Accepted Answer

A)  4.23 % 
B)  1.9% 
C)  0.47% 
D)  None of the above 
A)  4.23 % 
B)  1.9% 
C)  0.47% 
D)  None of the above

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

The risk that cannot be eliminated by diversification is called market risk.

Stock M and Stock N have had the following returns for the past three years of -12%, 10%, 32%; and 15%, 6%, 24% respectively. Calculate the covariance between the two securities.

The standard statistical measures of spread are beta and covariance.

What has been the standard deviation of returns of common stocks during the period between 1900 and 2006?

Which portfolio had the highest average annual return in real terms between 1900 and 2006?

A portfolio with a beta of one offers an expected return equal to the market risk premium.

Given the following data: risk-free rate = 4%, average risk premium = 7.7%. Calculate the required rate of return:

High standard deviation always translates into high beta.

How can individual investors diversify?

Which portfolio has had the highest average risk premium during the period 1900-2006?

As the number of stocks in a portfolio is increased:

Briefly explain the term "variance" of the returns.

What has been the average annual nominal rate of interest on Treasury bills over the past 107 years (1900 - 2006)?

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

The risk that cannot be eliminated by diversification is called unique risk.

Briefly explain the concept of value additivity.

Macro Corporation has had the following returns for the past three years, -10%, 10%, and 30%. Calculate the standard deviation of the returns.

Stock A has an expected return of 10% per year and stock B has an expected return of 20%. If 40% of the funds are invested in stock A, and the rest in stock B, what is the expected return on the portfolio of stock A and stock B?

If the standard deviation is 19.8% and the number of observations is 107, what is the standard error?

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

Efficient Markets and Behavioral Finance

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Financial Analysis

Financial Planning

Filters

Exam 7: Introduction to Risk and Return

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

The risk that cannot be eliminated by diversification is called market risk.

Stock M and Stock N have had the following returns for the past three years of -12%, 10%, 32%; and 15%, 6%, 24% respectively. Calculate the covariance between the two securities.

The standard statistical measures of spread are beta and covariance.

What has been the standard deviation of returns of common stocks during the period between 1900 and 2006?

Which portfolio had the highest average annual return in real terms between 1900 and 2006?

A portfolio with a beta of one offers an expected return equal to the market risk premium.

Given the following data: risk-free rate = 4%, average risk premium = 7.7%. Calculate the required rate of return:

High standard deviation always translates into high beta.

How can individual investors diversify?

Which portfolio has had the highest average risk premium during the period 1900-2006?

As the number of stocks in a portfolio is increased:

Briefly explain the term "variance" of the returns.

What has been the average annual nominal rate of interest on Treasury bills over the past 107 years (1900 - 2006)?

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

The risk that cannot be eliminated by diversification is called unique risk.

Briefly explain the concept of value additivity.

Macro Corporation has had the following returns for the past three years, -10%, 10%, and 30%. Calculate the standard deviation of the returns.

Stock A has an expected return of 10% per year and stock B has an expected return of 20%. If 40% of the funds are invested in stock A, and the rest in stock B, what is the expected return on the portfolio of stock A and stock B?

If the standard deviation is 19.8% and the number of observations is 107, what is the standard error?

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

Efficient Markets and Behavioral Finance

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Financial Analysis

Financial Planning

Filters