Question 1

Beta can be defined as the slope of the line that explains the relationship between

Accepted Answer

A)  the return on a security and the return on the market. 
B)  the returns on a security and various points in time. 
C)  the return on stocks and the returns on bonds. 
D)  the risk free rate of return versus the market rate of return. 
A)  the return on a security and the return on the market. 
B)  the returns on a security and various points in time. 
C)  the return on stocks and the returns on bonds. 
D)  the risk free rate of return versus the market rate of return. A

Question 2

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

Accepted Answer

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

Question 3

Exposure to systematic or market risk can be reduced by

Accepted Answer

A)  investing in a variety of economic sectors. 
B)  adding low or negative beta stocks to the portfolio. 
C)  diversifying internationally. 
D)  cannot be reduced or avoided. 
A)  investing in a variety of economic sectors. 
B)  adding low or negative beta stocks to the portfolio. 
C)  diversifying internationally. 
D)  cannot be reduced or avoided. B

Question 4

The risk measured by beta can be reduced by diversification.

Accepted Answer

A) True 
 B)False

Question 5

The index used to represent market returns is always assigned a beta of 1.0.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Which of the following factors comprise the CAPM?
I. dividend yield
II. risk-free rate of return
III. the expected rate of return on the market
IV. risk premium for the firm

Accepted Answer

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

Question 8

A stock with a higher beta is riskier than a stock with a lower beta.

Accepted Answer

A) True 
 B)False

Question 9

Both the efficient frontier and beta are important aspects of MPT.

Accepted Answer

A) True 
 B)False

Question 10

Combining perfectly, positively correlated assets will

Accepted Answer

A)  increase the overall risk level of a portfolio. 
B)  decrease the overall risk level of a portfolio. 
C)  not change the overall risk level of a portfolio. 
D)  increase or decrease the portfolio's risk depending on the risk of each single asset portfolio. 
A)  increase the overall risk level of a portfolio. 
B)  decrease the overall risk level of a portfolio. 
C)  not change the overall risk level of a portfolio. 
D)  increase or decrease the portfolio's risk depending on the risk of each single asset portfolio.

Question 11

Explain the differences in how modern and traditional theories of portfolio management approach the issue of diversification.

Accepted Answer

The modern approach to portfolio diversi

Question 12

Which of the following best describes the relationship between a stock's beta and the standard deviation of the stock's returns?

Accepted Answer

A)  The higher the standard deviation, the higher the beta. 
B)  The higher the standard deviation, the lower the beta. 
C)  The relationship depends on the correlation between the stock's returns and the market's returns. 
D)  Standard deviation and beta are different ways of measuring the same thing. 
A)  The higher the standard deviation, the higher the beta. 
B)  The higher the standard deviation, the lower the beta. 
C)  The relationship depends on the correlation between the stock's returns and the market's returns. 
D)  Standard deviation and beta are different ways of measuring the same thing.

Question 13

Market return is estimated from the average return on a large sample of stocks such as those in the Standard & Poor's 500 Stock Composite Index.

Accepted Answer

A) True 
 B)False

Question 14

A beta of 0.5 means that a stock is half as risky the overall market.

Accepted Answer

A) True 
 B)False

Question 15

According to MSN money, the stock of Orange Corporation has a beta of 1.5, but according to Yahoo Finance it is 1.75. The expected rate of return on the market is 12% and the risk free rate is 2%. What is the difference between the required rates of return calculated using each of these betas?

Accepted Answer

A)  1.50% 
B)  1.75% 
C)  2.0% 
D)  2.5% 
A)  1.50% 
B)  1.75% 
C)  2.0% 
D)  2.5%

Question 16

When the Capital Asset Pricing Model is depicted graphically, the result is the

Accepted Answer

A)  standard deviation line. 
B)  coefficient of variation line. 
C)  security market line. 
D)  alpha-beta line. 
A)  standard deviation line. 
B)  coefficient of variation line. 
C)  security market line. 
D)  alpha-beta line.

Question 17

The risk premium to be used in the Capital Asset Pricing Model is calculated as (rf-rm).

Accepted Answer

A) True 
 B)False

Question 18

The stock of NOP, Inc. has a beta of 1.80. The market rate of return is expected to increase by by 3%. Beta predicts that ABC stock should

Accepted Answer

A)  increase in value by 2.4%. 
B)  increase in value by 5.4%. 
C)  decrease in value by .8%. 
D)  increase in value by 1.8%. 
A)  increase in value by 2.4%. 
B)  increase in value by 5.4%. 
C)  decrease in value by .8%. 
D)  increase in value by 1.8%.

Question 19

Xander owns the following portfolio of stocks. What is the return on his portfolio? $$\begin{array} { c c c } 
\text { Stock } & \text { Amount Invested } & \text { Return on Stock } \
\hline \mathrm { L } & \$ 7,000 & - 8.0 \% \
\mathrm { M } & \$ 10,000 & 9.5 \% \
\mathrm {~N} & \$ 2,600 & 14.6 \%
\end{array}$$

Accepted Answer

A)  3.93% 
B)  6.61% 
C)  10.76% 
D)  9.97% 
A)  3.93% 
B)  6.61% 
C)  10.76% 
D)  9.97%

Question 20

All possible combinations of assets in a given portfolio will lie along the efficient frontier.

Accepted Answer

A) True 
 B)False

Beta can be defined as the slope of the line that explains the relationship between

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

Exposure to systematic or market risk can be reduced by

The risk measured by beta can be reduced by diversification.

The index used to represent market returns is always assigned a beta of 1.0.

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

Which of the following factors comprise the CAPM? I. dividend yield II. risk-free rate of return III. the expected rate of return on the market IV. risk premium for the firm

A stock with a higher beta is riskier than a stock with a lower beta.

Both the efficient frontier and beta are important aspects of MPT.

Combining perfectly, positively correlated assets will

Explain the differences in how modern and traditional theories of portfolio management approach the issue of diversification.

Which of the following best describes the relationship between a stock's beta and the standard deviation of the stock's returns?

Market return is estimated from the average return on a large sample of stocks such as those in the Standard & Poor's 500 Stock Composite Index.

A beta of 0.5 means that a stock is half as risky the overall market.

According to MSN money, the stock of Orange Corporation has a beta of 1.5, but according to Yahoo Finance it is 1.75. The expected rate of return on the market is 12% and the risk free rate is 2%. What is the difference between the required rates of return calculated using each of these betas?

When the Capital Asset Pricing Model is depicted graphically, the result is the

The risk premium to be used in the Capital Asset Pricing Model is calculated as (rf-rm).

The stock of NOP, Inc. has a beta of 1.80. The market rate of return is expected to increase by by 3%. Beta predicts that ABC stock should

Xander owns the following portfolio of stocks. What is the return on his portfolio? Stock Amount Invested Return on Stock \ 7,000 -8.0\% \ 10,000 9.5\% \ 2,600 14.6\%

All possible combinations of assets in a given portfolio will lie along the efficient frontier.

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Return and Risk

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Managing Your Own Portfolio

Options: Puts and Calls

Futures Markets and Securities

Filters

Exam 5: Modern Portfolio Concepts

Beta can be defined as the slope of the line that explains the relationship between

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

Exposure to systematic or market risk can be reduced by

The risk measured by beta can be reduced by diversification.

The index used to represent market returns is always assigned a beta of 1.0.

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

Which of the following factors comprise the CAPM? I. dividend yield II. risk-free rate of return III. the expected rate of return on the market IV. risk premium for the firm

A stock with a higher beta is riskier than a stock with a lower beta.

Both the efficient frontier and beta are important aspects of MPT.

Combining perfectly, positively correlated assets will

Explain the differences in how modern and traditional theories of portfolio management approach the issue of diversification.

Which of the following best describes the relationship between a stock's beta and the standard deviation of the stock's returns?

Market return is estimated from the average return on a large sample of stocks such as those in the Standard & Poor's 500 Stock Composite Index.

A beta of 0.5 means that a stock is half as risky the overall market.

According to MSN money, the stock of Orange Corporation has a beta of 1.5, but according to Yahoo Finance it is 1.75. The expected rate of return on the market is 12% and the risk free rate is 2%. What is the difference between the required rates of return calculated using each of these betas?

When the Capital Asset Pricing Model is depicted graphically, the result is the

The risk premium to be used in the Capital Asset Pricing Model is calculated as (rf-rm).

The stock of NOP, Inc. has a beta of 1.80. The market rate of return is expected to increase by by 3%. Beta predicts that ABC stock should

Xander owns the following portfolio of stocks. What is the return on his portfolio? Stock Amount Invested Return on Stock \ 7,000 -8.0\% \ 10,000 9.5\% \ 2,600 14.6\%

All possible combinations of assets in a given portfolio will lie along the efficient frontier.

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Return and Risk

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Managing Your Own Portfolio

Options: Puts and Calls

Futures Markets and Securities

Filters