Question 1

A beta of 2.0 indicates an asset's return is more volatile than the market.​

Accepted Answer

A) True 
 B)False  True

Question 2

Which of the following will reduce the required return on an investment?​

Accepted Answer

A)  ​an increase in beta and a reduction in the Treasury bill rate 
B)  ​an increase in the Treasury bill rate and a decrease in beta 
C)  ​a decrease in the Treasury bill rate and a decrease in beta 
D)  an increase in the Treasury bill rate and an increase in beta​ 
A)  ​an increase in beta and a reduction in the Treasury bill rate 
B)  ​an increase in the Treasury bill rate and a decrease in beta 
C)  ​a decrease in the Treasury bill rate and a decrease in beta 
D)  an increase in the Treasury bill rate and an increase in beta​ C

Question 3

The standard deviation measures​

Accepted Answer

A)  ​the dispersion around an average value 
B)  ​systematic risk 
C)  ​unsystematic risk 
D)  ​the security's high‑low prices 
A)  ​the dispersion around an average value 
B)  ​systematic risk 
C)  ​unsystematic risk 
D)  ​the security's high‑low prices A

Question 4

A portfolio consisting of securities that are highly correlated is well diversified.​

Accepted Answer

A) True 
 B)False

Question 5

Realized returns frequently differ from expected returns.​

Accepted Answer

A) True 
 B)False

Question 6

The expected return on an investment includes both the expected income plus expected price appreciation.​

Accepted Answer

A) True 
 B)False

Question 7

Stocks with low beta coefficients have higher required rates of return.​

Accepted Answer

A) True 
 B)False

Question 8

What is the expected return on a stock if the firm will earn 24% during a period of economic boom, 14% during normal economic periods, and 2% during a period of recession if the probabilities of these economic environments are 20%, 65%, and 15%, respectively?​

Accepted Answer

The expected return is a weigh

Question 9

​The risk-adjusted required rate of return excludes

Accepted Answer

A)  ​the stock's standard deviation 
B)  ​the stock's beta 
C)  ​the risk-free rate 
D)  ​the anticipated return on the market 
A)  ​the stock's standard deviation 
B)  ​the stock's beta 
C)  ​the risk-free rate 
D)  ​the anticipated return on the market

Question 10

​Sources of risk include
1) fluctuations in stock prices
2) inflation
3) possibility of bankruptcy

Accepted Answer

A) ​1 and 2 
B) ​1 and 3 
C) ​2 and 3 
D) ​all three 
A) ​1 and 2 
B) ​1 and 3 
C) ​2 and 3 
D) ​all three

Question 11

The standard deviation measures an asset's expected return.​

Accepted Answer

A) True 
 B)False

Question 12

The larger an investment's standard deviation, the smaller is the element of risk.​

Accepted Answer

A) True 
 B)False

Question 13

For a security to help diversify a portfolio, the asset​

Accepted Answer

A)  ​must generate a greater return than the average return on the portfolio 
B)  should not be sensitive to changes in security prices​ 
C)  ​should have a return that is negatively correlated with the return on other securities in the portfolio 
D)  ​must be a debt instrument if the portfolio consists primarily of stocks 
A)  ​must generate a greater return than the average return on the portfolio 
B)  should not be sensitive to changes in security prices​ 
C)  ​should have a return that is negatively correlated with the return on other securities in the portfolio 
D)  ​must be a debt instrument if the portfolio consists primarily of stocks

Question 14

The capital asset pricing model specifies the required return adjusted for systematic risk.​

Accepted Answer

A) True 
 B)False

Question 15

​Systematic risk
1) is the tendency for a stock's return and the return on the market to move together
2) is reduced by constructing a diversified portfolio
3) depends on the firm's business and financial risk
4) is measured by beta coefficients

Accepted Answer

A) ​1 and 2 
B) ​2 and 3 
C) ​1 and 4 
D) ​2 and 4 
A) ​1 and 2 
B) ​2 and 3 
C) ​1 and 4 
D) ​2 and 4

Question 16

Components of the capital asset pricing model include​

Accepted Answer

A)  ​a stock's market price 
B)  ​the standard deviation of a stock's return 
C)  ​the rate on a risk-free security 
D)  ​the investor's need for income versus capital gains 
A)  ​a stock's market price 
B)  ​the standard deviation of a stock's return 
C)  ​the rate on a risk-free security 
D)  ​the investor's need for income versus capital gains

Question 17

Unsystematic risk is the tendency for stock prices to move together.​

Accepted Answer

A) True 
 B)False

Question 18

A diversified portfolio reduces​

Accepted Answer

A)  ​unsystematic risk 
B)  ​systematic risk 
C)  ​purchasing power risk 
D)  ​interest rate risk 
A)  ​unsystematic risk 
B)  ​systematic risk 
C)  ​purchasing power risk 
D)  ​interest rate risk

Question 19

You bought a stock with a beta of 1.4 and earned a return of 8.3%. Did you outperform the market if, during the same period, the market rose by 7.4% and you could have earned 5.4% by investing in a Treasury bill?​

Accepted Answer

The material in this problem was not exp

Question 20

An investor may reduce risk by​
1) selecting low beta stocks
2) constructing a diversified portfolio
3) selecting high beta stocks

Accepted Answer

A) ​1 and 2 
B) ​1 and 3 
C) ​2 and 3 
D) ​only 1 
A) ​1 and 2 
B) ​1 and 3 
C) ​2 and 3 
D) ​only 1

Exam 8: Risk and Its Measurement

A beta of 2.0 indicates an asset's return is more volatile than the market.​

Which of the following will reduce the required return on an investment?​

The standard deviation measures​

A portfolio consisting of securities that are highly correlated is well diversified.​

Realized returns frequently differ from expected returns.​

The expected return on an investment includes both the expected income plus expected price appreciation.​

Stocks with low beta coefficients have higher required rates of return.​

What is the expected return on a stock if the firm will earn 24% during a period of economic boom, 14% during normal economic periods, and 2% during a period of recession if the probabilities of these economic environments are 20%, 65%, and 15%, respectively?​

​The risk-adjusted required rate of return excludes

​Sources of risk include 1) fluctuations in stock prices 2) inflation 3) possibility of bankruptcy

The standard deviation measures an asset's expected return.​

The larger an investment's standard deviation, the smaller is the element of risk.​

For a security to help diversify a portfolio, the asset​

The capital asset pricing model specifies the required return adjusted for systematic risk.​

​Systematic risk 1) is the tendency for a stock's return and the return on the market to move together 2) is reduced by constructing a diversified portfolio 3) depends on the firm's business and financial risk 4) is measured by beta coefficients

Components of the capital asset pricing model include​

Unsystematic risk is the tendency for stock prices to move together.​

A diversified portfolio reduces​

You bought a stock with a beta of 1.4 and earned a return of 8.3%. Did you outperform the market if, during the same period, the market rose by 7.4% and you could have earned 5.4% by investing in a Treasury bill?​

An investor may reduce risk by​ 1) selecting low beta stocks 2) constructing a diversified portfolio 3) selecting high beta stocks

The Role of Financial Markets and Financial Intermediaries

Investment Banking

Securities Markets

The Federal Reserve

International Currency Flows

The Time Value of Money

Analysis of Financial Statements

The Features of Stock

Stock Valuation

The Features of Long-Term Debt - Bonds

Bond Pricing and Yields

Preferred Stock

Convertile Securities

Investment Returns

Investment Companies

Forms of Businss and Corporate Taxation

Break-Even Analysis and the Payback Period

Leverage

Cost of Capital

Capital Budgeting

Forecasting

Cash Budgeting

Management of Current Assets

Management of Short-Term Liabilities

Intermediate-Term Debt and Leasing

Options: Puts and Calls

Futures and Swaps

Filters

A beta of 2.0 indicates an asset's return is more volatile than the market.

Which of the following will reduce the required return on an investment?

The standard deviation measures

A portfolio consisting of securities that are highly correlated is well diversified.

Realized returns frequently differ from expected returns.

The expected return on an investment includes both the expected income plus expected price appreciation.

Stocks with low beta coefficients have higher required rates of return.

What is the expected return on a stock if the firm will earn 24% during a period of economic boom, 14% during normal economic periods, and 2% during a period of recession if the probabilities of these economic environments are 20%, 65%, and 15%, respectively?

The risk-adjusted required rate of return excludes

Sources of risk include 1) fluctuations in stock prices 2) inflation 3) possibility of bankruptcy

The standard deviation measures an asset's expected return.

The larger an investment's standard deviation, the smaller is the element of risk.

For a security to help diversify a portfolio, the asset

The capital asset pricing model specifies the required return adjusted for systematic risk.

Systematic risk 1) is the tendency for a stock's return and the return on the market to move together 2) is reduced by constructing a diversified portfolio 3) depends on the firm's business and financial risk 4) is measured by beta coefficients

Components of the capital asset pricing model include

Unsystematic risk is the tendency for stock prices to move together.

A diversified portfolio reduces

You bought a stock with a beta of 1.4 and earned a return of 8.3%. Did you outperform the market if, during the same period, the market rose by 7.4% and you could have earned 5.4% by investing in a Treasury bill?

An investor may reduce risk by 1) selecting low beta stocks 2) constructing a diversified portfolio 3) selecting high beta stocks