Question 1

R squared is a measure of

Accepted Answer

A)  goodness of fit 
B)  partial dispersion 
C)  central tendency 
D)  skewness 
A)  goodness of fit 
B)  partial dispersion 
C)  central tendency 
D)  skewness

Question 2

The diminishing marginal utility of money explains why

Accepted Answer

A)  some stocks sell for more than others 
B)  most people will not take a fair bet 
C)  people view the stock market as risky 
D)  people tend to pay too much 
A)  some stocks sell for more than others 
B)  most people will not take a fair bet 
C)  people view the stock market as risky 
D)  people tend to pay too much

Question 3

The market rewards investors for bearing _____risk.

Accepted Answer

A)  diversifiable 
B)  undiversifiable 
C)  unsystematic 
D)  total 
A)  diversifiable 
B)  undiversifiable 
C)  unsystematic 
D)  total

Question 4

Risk must involve

Accepted Answer

A)  a chance of loss 
B)  an unknown probability distribution 
C)  actual dollars 
D)  negative expected returns 
A)  a chance of loss 
B)  an unknown probability distribution 
C)  actual dollars 
D)  negative expected returns

Question 5

Suppose a stock pays no dividends. Another method of calculating the return relative is

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 6

If a stock has a higher than average expected return, you would logically expect it is

Accepted Answer

A)  widely held by investors 
B)  riskier than average 
C)  in an industry with good prospects 
D)  a well-managed company 
A)  widely held by investors 
B)  riskier than average 
C)  in an industry with good prospects 
D)  a well-managed company

Question 7

The expected value of x is 5%. What is E(6x)?

Accepted Answer

A)  0.833% 
B)  5% 
C)  30% 
D)  Cannot be determined 
A)  0.833% 
B)  5% 
C)  30% 
D)  Cannot be determined

Question 8

Which of the following can help reduce the effect of outliers?

Accepted Answer

A)  Rounding 
B)  Regression 
C)  Interpolation 
D)  Logarithms 
A)  Rounding 
B)  Regression 
C)  Interpolation 
D)  Logarithms

Question 9

The expected value of a random variable is also called the

Accepted Answer

A)  skewness 
B)  variance 
C)  kurtosis 
D)  mean 
A)  skewness 
B)  variance 
C)  kurtosis 
D)  mean

Question 10

Using a discount rate of 8% per year, what is the present value of an ordinary annuity of $100 per year for 10 years?

Accepted Answer

A)  $1,000 
B)  $671 
C)  $887 
D)  $557 
A)  $1,000 
B)  $671 
C)  $887 
D)  $557

Question 11

The use of _____ can dramatically affect an investor's return.

Accepted Answer

A)  historical data 
B)  leverage 
C)  arithmetic averages 
D)  variance calculations 
A)  historical data 
B)  leverage 
C)  arithmetic averages 
D)  variance calculations

Question 12

The St. Petersburg paradox explains why

Accepted Answer

A)  some stocks sell for more than others 
B)  most people will not take a fair bet 
C)  people view the stock market as risky 
D)  people tend to pay too much 
A)  some stocks sell for more than others 
B)  most people will not take a fair bet 
C)  people view the stock market as risky 
D)  people tend to pay too much

Question 13

A stock's return is 15.5%. The return relative is

Accepted Answer

A)  0.845 
B)  -0.845 
C)  0.155 
D)  1.155 
A)  0.845 
B)  -0.845 
C)  0.155 
D)  1.155

Question 14

Most investors would not be interested in a fair bet because

Accepted Answer

A)  they would be concerned whether it is really fair 
B)  investors do not willingly take a risk when it is possible to lose money 
C)  losing a given amount of money would reduce utility more than winning the same amount would increase utility 
D)  they accept only bets with a sure outcome 
A)  they would be concerned whether it is really fair 
B)  investors do not willingly take a risk when it is possible to lose money 
C)  losing a given amount of money would reduce utility more than winning the same amount would increase utility 
D)  they accept only bets with a sure outcome

Question 15

Random variables reside in a population

Accepted Answer

A)  sample 
B)  continuous set 
C)  discrete set 
A)  sample 
B)  continuous set 
C)  discrete set

Question 16

The correlation coefficient is equal to

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 17

Individual investment behavior is more a function of _____ than _____.

Accepted Answer

A)  risk, expected return 
B)  expected return, utility 
C)  utility, expected return 
D)  expected return, risk 
A)  risk, expected return 
B)  expected return, utility 
C)  utility, expected return 
D)  expected return, risk

Question 18

If two securities are negatively correlated, their covariance is

Accepted Answer

A)  positive 
B)  negative 
C)  zero 
D)  cannot be determined 
A)  positive 
B)  negative 
C)  zero 
D)  cannot be determined

Question 19

Return relatives are calculated primarily to deal with the potential problem of

Accepted Answer

A)  changing returns 
B)  large returns 
C)  zero returns 
D)  negative returns 
A)  changing returns 
B)  large returns 
C)  zero returns 
D)  negative returns

Question 20

The median of a distribution is the

Accepted Answer

A)  arithmetic average 
B)  geometric average 
C)  point where half of the observations lie on either side 
D)  value that occurs most frequently 
A)  arithmetic average 
B)  geometric average 
C)  point where half of the observations lie on either side 
D)  value that occurs most frequently

Exam 2: Valuation, Risk, Return, and Uncertainty

R squared is a measure of

The diminishing marginal utility of money explains why

The market rewards investors for bearing _____risk.

Risk must involve

Suppose a stock pays no dividends. Another method of calculating the return relative is

If a stock has a higher than average expected return, you would logically expect it is

The expected value of x is 5%. What is E(6x)?

Which of the following can help reduce the effect of outliers?

The expected value of a random variable is also called the

Using a discount rate of 8% per year, what is the present value of an ordinary annuity of $100 per year for 10 years?

The use of _____ can dramatically affect an investor's return.

The St. Petersburg paradox explains why

A stock's return is 15.5%. The return relative is

Most investors would not be interested in a fair bet because

Random variables reside in a population

The correlation coefficient is equal to

Individual investment behavior is more a function of _____ than _____.

If two securities are negatively correlated, their covariance is

Return relatives are calculated primarily to deal with the potential problem of

The median of a distribution is the

The Process of Portfolio Management

Setting Portfolio Objectives

Investment Policy

The Mathematics of Diversification

Why Diversification Is a Good Idea

International Investment and Diversification

The Capital Markets and Market Efficiency

Picking the Equity Players

Equity Valuation Tools

Security Screening

Bond Pricing and Selection

The Role of Real Assets

Alternative Assets

Revision of the Equity Portfolio

Revision of the Fixed-Income Portfolio

Principles of Options and Option Pricing

Option Overwriting

Performance Evaluation

Fiduciary Duties and Responsibilities

Principles of the Futures Market

Benching the Equity Players

Removing Interest Rate Risk

Integrating Derivative Assets and Portfolio Management

Contemporary Issues in Portfolio Management

Filters

Individual investment behavior is more a function of _ than _.