Question 1

Between 1928 and 2018, the average annual return on Treasury Bills averaged _____%, while the average annual inflation rate averaged _____%.

Accepted Answer

A)  5.4, 3.07 
B)  3.4, 3.06 
C)  3.8, 5.4 
D)  3.2, 3.8 
A)  5.4, 3.07 
B)  3.4, 3.06 
C)  3.8, 5.4 
D)  3.2, 3.8

Question 2

A portfolio is any combination of financial assets or investments.

Accepted Answer

A) True 
 B)False

Question 3

Up to half of portfolio risk can be eliminated in a well-diversified international portfolio.

Accepted Answer

A) True 
 B)False

Question 4

In an informationally efficient market, there is no unexpected news.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is most correct?

Accepted Answer

A)  Combining positively correlated assets having the same expected return results in a portfolio with the same level of expected return and a lower level of risk. 
B)  Combining negatively correlated assets having the same expected return results in a portfolio with the same level of expected return and a lower level of risk. 
C)  Combining positively correlated assets having the same expected return results in a portfolio with a lower level of expected return and a lower level of risk. 
D)  Combining negatively correlated assets having the same expected return results in a portfolio with a lower level of expected return and a lower level of risk. 
A)  Combining positively correlated assets having the same expected return results in a portfolio with the same level of expected return and a lower level of risk. 
B)  Combining negatively correlated assets having the same expected return results in a portfolio with the same level of expected return and a lower level of risk. 
C)  Combining positively correlated assets having the same expected return results in a portfolio with a lower level of expected return and a lower level of risk. 
D)  Combining negatively correlated assets having the same expected return results in a portfolio with a lower level of expected return and a lower level of risk.

Question 6

When prices appear to fluctuate with no consistent or discernible pattern over time, it is called a drunken walk.

Accepted Answer

A) True 
 B)False

Question 7

The risk caused by changes in inflation that affect revenues, expenses and profitability is called:

Accepted Answer

A)  interest rate risk 
B)  business risk 
C)  purchasing power risk 
D)  financial risk 
A)  interest rate risk 
B)  business risk 
C)  purchasing power risk 
D)  financial risk

Question 8

The square root of the variance is called the:

Accepted Answer

A)  covariance 
B)  coefficient of variation 
C)  beta 
D)  standard deviation 
A)  covariance 
B)  coefficient of variation 
C)  beta 
D)  standard deviation

Question 9

A stock that went from $40 per share at the beginning of the year to $45 at the end of the year and paid a $2 dividend provided an investor with a ____ return.

Accepted Answer

A)  8.75% 
B)  14% 
C)  17.5% 
D)  7% 
A)  8.75% 
B)  14% 
C)  17.5% 
D)  7%

Question 10

There are relatively few mutual funds.

Accepted Answer

A) True 
 B)False

Question 11

Variations in operating income over time because of variations in unit sales, price, cost margins, and/or fixed expenses are not called:

Accepted Answer

A)  growth rate risk 
B)  time value risk 
C)  business risk 
D)  financial risk 
A)  growth rate risk 
B)  time value risk 
C)  business risk 
D)  financial risk

Question 12

The risk caused by variations in income before taxes over time because fixed interest expenses do not change when operating income rises or falls is called:

Accepted Answer

A)  interest rate risk 
B)  business risk 
C)  financial risk 
D)  purchasing power risk 
A)  interest rate risk 
B)  business risk 
C)  financial risk 
D)  purchasing power risk

Question 13

Most undiversifiable risk can be eliminated by creating a portfolio of around 30 stocks.

Accepted Answer

A) True 
 B)False

Question 14

The benefits of diversification are greatest when asset returns have positive correlations.

Accepted Answer

A) True 
 B)False

Question 15

The relevant measure of risk for a diversified portfolio of assets is the portfolio's level of:

Accepted Answer

A)  systematic risk 
B)  unsystematic risk 
C)  diversifiable risk 
D)  company specific risk 
A)  systematic risk 
B)  unsystematic risk 
C)  diversifiable risk 
D)  company specific risk

Question 16

Which one of the following is not considered to be a generally recognized type of market efficiency?

Accepted Answer

A)  strong-form 
B)  semi-strong form 
C)  weak-form 
D)  insider-information form 
A)  strong-form 
B)  semi-strong form 
C)  weak-form 
D)  insider-information form

Question 17

If stock A has a standard deviation of 5 and stock B has a standard deviation of 10, the higher standard deviation for B tells us it has higher risk.

Accepted Answer

A) True 
 B)False

Question 18

Variations in a firm's tax rate and tax-related charges over time due to changing tax laws and regulations is called:

Accepted Answer

A)  interest rate risk 
B)  business risk 
C)  exchange rate risk 
D)  tax rate risk 
A)  interest rate risk 
B)  business risk 
C)  exchange rate risk 
D)  tax rate risk

Question 19

If a financial asset has a historical variance of 25, then its standard deviation must be 12.5%.

Accepted Answer

A) True 
 B)False

Question 20

A weak-form efficient market is one in which prices reflect all public knowledge, including past and current information.

Accepted Answer

A) True 
 B)False

Between 1928 and 2018, the average annual return on Treasury Bills averaged _%, while the average annual inflation rate averaged _%.

A portfolio is any combination of financial assets or investments.

Up to half of portfolio risk can be eliminated in a well-diversified international portfolio.

In an informationally efficient market, there is no unexpected news.

Which of the following statements is most correct?

When prices appear to fluctuate with no consistent or discernible pattern over time, it is called a drunken walk.

The risk caused by changes in inflation that affect revenues, expenses and profitability is called:

The square root of the variance is called the:

A stock that went from $40 per share at the beginning of the year to $45 at the end of the year and paid a $2 dividend provided an investor with a ____ return.

There are relatively few mutual funds.

Variations in operating income over time because of variations in unit sales, price, cost margins, and/or fixed expenses are not called:

The risk caused by variations in income before taxes over time because fixed interest expenses do not change when operating income rises or falls is called:

Most undiversifiable risk can be eliminated by creating a portfolio of around 30 stocks.

The benefits of diversification are greatest when asset returns have positive correlations.

The relevant measure of risk for a diversified portfolio of assets is the portfolio's level of:

Which one of the following is not considered to be a generally recognized type of market efficiency?

If stock A has a standard deviation of 5 and stock B has a standard deviation of 10, the higher standard deviation for B tells us it has higher risk.

Variations in a firm's tax rate and tax-related charges over time due to changing tax laws and regulations is called:

If a financial asset has a historical variance of 25, then its standard deviation must be 12.5%.

A weak-form efficient market is one in which prices reflect all public knowledge, including past and current information.

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Bonds and Stocks: Characteristics and Valuations

Securities and Markets

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters

Exam 12: Financial Return and Risk Concepts

Between 1928 and 2018, the average annual return on Treasury Bills averaged _____%, while the average annual inflation rate averaged _____%.

A portfolio is any combination of financial assets or investments.

Up to half of portfolio risk can be eliminated in a well-diversified international portfolio.

In an informationally efficient market, there is no unexpected news.

Which of the following statements is most correct?

When prices appear to fluctuate with no consistent or discernible pattern over time, it is called a drunken walk.

The risk caused by changes in inflation that affect revenues, expenses and profitability is called:

The square root of the variance is called the:

A stock that went from $40 per share at the beginning of the year to $45 at the end of the year and paid a $2 dividend provided an investor with a ____ return.

There are relatively few mutual funds.

Variations in operating income over time because of variations in unit sales, price, cost margins, and/or fixed expenses are not called:

The risk caused by variations in income before taxes over time because fixed interest expenses do not change when operating income rises or falls is called:

Most undiversifiable risk can be eliminated by creating a portfolio of around 30 stocks.

The benefits of diversification are greatest when asset returns have positive correlations.

The relevant measure of risk for a diversified portfolio of assets is the portfolio's level of:

Which one of the following is not considered to be a generally recognized type of market efficiency?

If stock A has a standard deviation of 5 and stock B has a standard deviation of 10, the higher standard deviation for B tells us it has higher risk.

Variations in a firm's tax rate and tax-related charges over time due to changing tax laws and regulations is called:

If a financial asset has a historical variance of 25, then its standard deviation must be 12.5%.

A weak-form efficient market is one in which prices reflect all public knowledge, including past and current information.

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Bonds and Stocks: Characteristics and Valuations

Securities and Markets

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters

Between 1928 and 2018, the average annual return on Treasury Bills averaged _%, while the average annual inflation rate averaged _%.