Question 1

An investor may reduce risk by selecting​

Accepted Answer

A)  ​high beta stocks 
B)  ​stocks with poorly correlated returns 
C)  ​a cross‑section of firms in the same industry 
D)  ​stocks traded on organized exchanges 
A)  ​high beta stocks 
B)  ​stocks with poorly correlated returns 
C)  ​a cross‑section of firms in the same industry 
D)  ​stocks traded on organized exchanges

Question 2

A beta coefficient is a measure of the volatility of​

Accepted Answer

A)  ​a firm's position in its industry 
B)  a stock's return relative to the market return​ 
C)  ​aggregate market stock prices 
D)  ​a firm's earnings 
A)  ​a firm's position in its industry 
B)  a stock's return relative to the market return​ 
C)  ​aggregate market stock prices 
D)  ​a firm's earnings

Question 3

There is no risk in a world of certainty. ue of an annuity due.​

Accepted Answer

A) True 
 B)False

Question 4

A beta of 1.0 indicates that the stock's price is stable.​

Accepted Answer

A) True 
 B)False

Question 5

A beta coefficient of 1.2 implies​
1) the stock is more risky than the market
2) the stock's return is 1.2 times the return on the market
3) the stock is less risky than the market
4) the market's return is 1.2 times the return on the stock

Accepted Answer

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

Question 6

​A diversified portfolio

Accepted Answer

A)  ​increases systematic risk 
B)  ​reduces systematic risk 
C)  ​increases unsystematic risk 
D)  ​reduces unsystematic risk 
A)  ​increases systematic risk 
B)  ​reduces systematic risk 
C)  ​increases unsystematic risk 
D)  ​reduces unsystematic risk

Question 7

Systematic risk is reduced through portfolio diversification.​

Accepted Answer

A) True 
 B)False

Question 8

A beta coefficient for a stock of 0.8 implies​

Accepted Answer

A)  ​an 8% return on the market will cause the return on this stock to be 10% 
B)  an 8% decrease in the market will cause the return on this stock to be 8%​ 
C)  ​a return of 10% on the market will cause the return on this stock to be 8% 
D)  a return of 10% on the market will cause the return on this stock to be ‑8%​ 
A)  ​an 8% return on the market will cause the return on this stock to be 10% 
B)  an 8% decrease in the market will cause the return on this stock to be 8%​ 
C)  ​a return of 10% on the market will cause the return on this stock to be 8% 
D)  a return of 10% on the market will cause the return on this stock to be ‑8%​

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

​What is the required return using the capital asset pricing model if a stock's beta is 1.2 and the individual, who expects the market to rise by 11.2%, can earn 4.4% invested in a risk-free Treasury bill?

Accepted Answer

The required return

Question 11

The risk premium in the capital asset pricing model rises with the expected return on the market.​

Accepted Answer

A) True 
 B)False

Question 12

A beta coefficient is an index of an asset's unsystematic risk.​

Accepted Answer

A) True 
 B)False

Question 13

Beta coefficients and standard deviations may be used as indicators of risk.​

Accepted Answer

A) True 
 B)False

Question 14

An aggressive investor will tend to prefer stocks with high betas during rising markets.​

Accepted Answer

A) True 
 B)False

Question 15

The numerical value of a stock's beta tends to be stable over time.​

Accepted Answer

A) True 
 B)False

Question 16

Beta coefficients are computed with estimated data concerning the asset's expected return.​

Accepted Answer

A) True 
 B)False

Question 17

The risk associated with dispersion around an expected value (e.g., expected return) is measured by the​

Accepted Answer

A)  ​beta coefficient 
B)  ​range (i.e., high‑low values) 
C)  ​standard deviation 
D)  ​debt to total assets (i.e., the debt ratio) 
A)  ​beta coefficient 
B)  ​range (i.e., high‑low values) 
C)  ​standard deviation 
D)  ​debt to total assets (i.e., the debt ratio)

Question 18

A beta coefficient for a risky stock is​

Accepted Answer

A)  ​less than 1.0 
B)  ​equal to 1.0 
C)  ​greater than 1.0 
D)  ​negative 
A)  ​less than 1.0 
B)  ​equal to 1.0 
C)  ​greater than 1.0 
D)  ​negative

Question 19

To measure risk, the capital asset pricing model uses​

Accepted Answer

A)  ​beta 
B)  ​an asset's standard deviation 
C)  ​the volatility of an asset's cash flows 
D)  ​the term during which the asset is held 
A)  ​beta 
B)  ​an asset's standard deviation 
C)  ​the volatility of an asset's cash flows 
D)  ​the term during which the asset is held

Exam 8: Risk and Its Measurement

An investor may reduce risk by selecting​

A beta coefficient is a measure of the volatility of​

There is no risk in a world of certainty. ue of an annuity due.​

A beta of 1.0 indicates that the stock's price is stable.​

A beta coefficient of 1.2 implies​ 1) the stock is more risky than the market 2) the stock's return is 1.2 times the return on the market 3) the stock is less risky than the market 4) the market's return is 1.2 times the return on the stock

​A diversified portfolio

Systematic risk is reduced through portfolio diversification.​

A beta coefficient for a stock of 0.8 implies​

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

​What is the required return using the capital asset pricing model if a stock's beta is 1.2 and the individual, who expects the market to rise by 11.2%, can earn 4.4% invested in a risk-free Treasury bill?

The risk premium in the capital asset pricing model rises with the expected return on the market.​

A beta coefficient is an index of an asset's unsystematic risk.​

Beta coefficients and standard deviations may be used as indicators of risk.​

An aggressive investor will tend to prefer stocks with high betas during rising markets.​

The numerical value of a stock's beta tends to be stable over time.​

Beta coefficients are computed with estimated data concerning the asset's expected return.​

The risk associated with dispersion around an expected value (e.g., expected return) is measured by the​

A beta coefficient for a risky stock is​

To measure risk, the capital asset pricing model uses​

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

An investor may reduce risk by selecting

A beta coefficient is a measure of the volatility of

There is no risk in a world of certainty. ue of an annuity due.

A beta of 1.0 indicates that the stock's price is stable.

A beta coefficient of 1.2 implies 1) the stock is more risky than the market 2) the stock's return is 1.2 times the return on the market 3) the stock is less risky than the market 4) the market's return is 1.2 times the return on the stock

A diversified portfolio

Systematic risk is reduced through portfolio diversification.

A beta coefficient for a stock of 0.8 implies

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

What is the required return using the capital asset pricing model if a stock's beta is 1.2 and the individual, who expects the market to rise by 11.2%, can earn 4.4% invested in a risk-free Treasury bill?

The risk premium in the capital asset pricing model rises with the expected return on the market.

A beta coefficient is an index of an asset's unsystematic risk.

Beta coefficients and standard deviations may be used as indicators of risk.

An aggressive investor will tend to prefer stocks with high betas during rising markets.

The numerical value of a stock's beta tends to be stable over time.

Beta coefficients are computed with estimated data concerning the asset's expected return.

The risk associated with dispersion around an expected value (e.g., expected return) is measured by the

A beta coefficient for a risky stock is

To measure risk, the capital asset pricing model uses