Question 1

For each additional 1% change in the market return, Amazon stock return on the average changes by:

Accepted Answer

A)  1.26% 
B)  1.59% 
C)  2.2% 
D)  None of the above 
A)  1.26% 
B)  1.59% 
C)  2.2% 
D)  None of the above

Question 2

The type of the risk that can be eliminated by diversification is called:

Accepted Answer

A)  Market risk 
B)  Unique risk 
C)  Interest rate risk 
D)  Default risk 
A)  Market risk 
B)  Unique risk 
C)  Interest rate risk 
D)  Default risk

Question 3

Briefly explain the difference between beta as a measure of risk and variance as a measure of risk.

Accepted Answer

Variance measures the total risk of a se

Question 4

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 5

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 6

What is the beta of a portfolio with a large number of randomly selected stocks?

Accepted Answer

The beta of a portfolio with a

Question 7

Briefly explain how individual securities affect portfolio risk.

Accepted Answer

The risk of a well-diversified portfolio

Question 8

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 9

Define the term risk premium.

Accepted Answer

The difference between the security retu

Question 10

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 11

For log-normally distributed returns the annul compound returns is equal to:

Accepted Answer

A)  the arithmetic average returns minus half the variance 
B)  the arithmetic average returns plus half the variance 
C)  the arithmetic average returns minus half the standard deviation 
D)  the arithmetic average returns plus half the standard deviation 
A)  the arithmetic average returns minus half the variance 
B)  the arithmetic average returns plus half the variance 
C)  the arithmetic average returns minus half the standard deviation 
D)  the arithmetic average returns plus half the standard deviation

Question 12

Beta of a well-diversified portfolio is equal to the value weighted average beta of the securities included in the portfolio.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following countries had the lowest risk premium?

Accepted Answer

A)  U.S.A 
B)  Denmark 
C)  Italy 
D)  none of the above 
A)  U.S.A 
B)  Denmark 
C)  Italy 
D)  none of the above

Question 14

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

Accepted Answer

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

Question 15

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 16

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 17

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

Question 18

Briefly explain how diversification reduces risk.

Accepted Answer

Diversification reduces risk because pri

Question 19

If the covariance between stock A and stock B is 100, the standard deviation of stock A is 10% and that of stock B is 20%, calculate the correlation coefficient between the two securities.

Accepted Answer

A)  -0.5 
B)  +1.0 
C)  +0.5 
D)  None of the above 
A)  -0.5 
B)  +1.0 
C)  +0.5 
D)  None of the above

Question 20

Standard error is estimated as:

Accepted Answer

A)  Average annual rate of return divided by the square root of the number of observations 
B)  Variance divided by the number of observations 
C)  Standard deviation of returns divided by the square root of the number of observations 
D)  None of the above 
A)  Average annual rate of return divided by the square root of the number of observations 
B)  Variance divided by the number of observations 
C)  Standard deviation of returns divided by the square root of the number of observations 
D)  None of the above

For each additional 1% change in the market return, Amazon stock return on the average changes by:

The type of the risk that can be eliminated by diversification is called:

Briefly explain the difference between beta as a measure of risk and variance as a measure of risk.

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

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:

What is the beta of a portfolio with a large number of randomly selected stocks?

Briefly explain how individual securities affect portfolio risk.

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

Define the term risk premium.

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:

For log-normally distributed returns the annul compound returns is equal to:

Beta of a well-diversified portfolio is equal to the value weighted average beta of the securities included in the portfolio.

Which of the following countries had the lowest risk premium?

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

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

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.

The beta of market portfolio is:

Briefly explain how diversification reduces risk.

If the covariance between stock A and stock B is 100, the standard deviation of stock A is 10% and that of stock B is 20%, calculate the correlation coefficient between the two securities.

Standard error is estimated as:

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

For each additional 1% change in the market return, Amazon stock return on the average changes by:

The type of the risk that can be eliminated by diversification is called:

Briefly explain the difference between beta as a measure of risk and variance as a measure of risk.

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

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:

What is the beta of a portfolio with a large number of randomly selected stocks?

Briefly explain how individual securities affect portfolio risk.

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

Define the term risk premium.

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:

For log-normally distributed returns the annul compound returns is equal to:

Beta of a well-diversified portfolio is equal to the value weighted average beta of the securities included in the portfolio.

Which of the following countries had the lowest risk premium?

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

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

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.

The beta of market portfolio is:

Briefly explain how diversification reduces risk.

If the covariance between stock A and stock B is 100, the standard deviation of stock A is 10% and that of stock B is 20%, calculate the correlation coefficient between the two securities.

Standard error is estimated as:

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