Question 1

The benefits of diversification are greatest when asset returns have:

Accepted Answer

A) negative correlations 
B) positive correlations 
C) zero correlations 
D) low positive covariances 
A) negative correlations 
B) positive correlations 
C) zero correlations 
D) low positive covariances

Question 2

The security market line can be used to determine the expected return on a security based on the:

Accepted Answer

A) market rate of return 
B) slope of the line 
C) systematic risk of that security 
D) risk premium 
A) market rate of return 
B) slope of the line 
C) systematic risk of that security 
D) risk premium

Question 3

If a person requires greater return when risk increases,that person is said to be:

Accepted Answer

A) risk seeking 
B) risk averse 
C) risk aware 
D) risk indifferent 
E) none of the above 
A) risk seeking 
B) risk averse 
C) risk aware 
D) risk indifferent 
E) none of the above

Question 4

Variations in operating income over time because of variations in unit sales,price,cost margins,and/or fixed expenses are called:

Accepted Answer

A) business risk 
B) exchange rate risk 
C) purchasing power risk 
D) financial risk 
E) none of the above 
A) business risk 
B) exchange rate risk 
C) purchasing power risk 
D) financial risk 
E) none of the above

Question 5

Because of portfolio effect,the most significant factor related to the risk of any investment is its:

Accepted Answer

A) standard deviation 
B) coefficient of variation 
C) effect on the risk of the portfolio 
D) unsystematic risk 
A) standard deviation 
B) coefficient of variation 
C) effect on the risk of the portfolio 
D) unsystematic risk

Question 6

If we assume that asset X has an expected return of 10 percent and a variance of 10 percent squared,then its coefficient of variation is:

Accepted Answer

A) 3.162 
B) 1.000 
C) 0.316 
D) none of the above 
A) 3.162 
B) 1.000 
C) 0.316 
D) none of the above

Question 7

Rico bought 100 shares of Banana Republic stock for $24.00 per share on January 1,2010.He received a dividend of $2.00 per share at the end of 2010 and $3.00 per share at the end of 2011.At the end of 2012,Rico collected a dividend of $4.00 per share and sold his stock for $18.00 per share.What was Rico's realized holding period return?

Accepted Answer

A) -15.5% 
B) 15.5% 
C) -16.7% 
D) 16.7% 
E) none of the above 
A) -15.5% 
B) 15.5% 
C) -16.7% 
D) 16.7% 
E) none of the above

Question 8

The market portfolio is a portfolio that contains all risky assets.

Accepted Answer

A) True 
 B)False

Question 9

A statistical concept that relates movements in one set of returns to movements in another set over time is called:

Accepted Answer

A) variance 
B) standard deviation 
C) coefficient of variation 
D) correlation 
A) variance 
B) standard deviation 
C) coefficient of variation 
D) correlation

Question 10

Which of the following statements is most correct?

Accepted Answer

A) The probability of an event occurring is the percentage of a given outcome. 
B) A skewed probability distribution shows all possible outcomes and associated probabilities for a given event. 
C) The standard evaluation measures the dispersion around the expected value. 
D) The constant of variation is a measure of relative dispersion used in comparing the risk of assets with differing expected returns. 
E) none of the above 
A) The probability of an event occurring is the percentage of a given outcome. 
B) A skewed probability distribution shows all possible outcomes and associated probabilities for a given event. 
C) The standard evaluation measures the dispersion around the expected value. 
D) The constant of variation is a measure of relative dispersion used in comparing the risk of assets with differing expected returns. 
E) none of the above

Question 11

The Capital Asset Pricing Model states that the expected return on an asset depends on its level of unsystematic risk.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is false?

Accepted Answer

A) diversification cannot eliminate risk that is inherent in the macroeconomy or market risk. 
B) the expected rate of return on a portfolio does not depend on the correlation between the return on each stock. 
C) although gold is a risky investment by itself,including gold in a stock portfolio may reduce total risk of the portfolio. 
D) all of the above statements are correct. 
A) diversification cannot eliminate risk that is inherent in the macroeconomy or market risk. 
B) the expected rate of return on a portfolio does not depend on the correlation between the return on each stock. 
C) although gold is a risky investment by itself,including gold in a stock portfolio may reduce total risk of the portfolio. 
D) all of the above statements are correct.

Question 13

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% 
E) none of the above 
A) 8.75% 
B) 14% 
C) 17.5% 
D) 7% 
E) none of the above

Question 14

As defined in accordance with efficient markets notions,a weak-form efficient market would be a market in which asset prices reflect all:

Accepted Answer

A) current information 
B) past information 
C) inside information 
D) public information 
A) current information 
B) past information 
C) inside information 
D) public information

Question 15

The total risk of a well-diversified international portfolio of stocks appears to be about what proportion of the risk of an average one-stock portfolio?

Accepted Answer

A) one-third 
B) one-half 
C) two-thirds 
D) three-fourths 
A) one-third 
B) one-half 
C) two-thirds 
D) three-fourths

Question 16

The historical percentage return for a single financial asset is equal to any dividends received minus the difference between the selling price and the purchase price,all divided by the purchase price.

Accepted Answer

A) True 
 B)False

Question 17

If Stock A is considered to be of lower risk than Stock B,then Stock A should have returns that are

Accepted Answer

A) lower than Stock B 
B) higher than Stock B 
C) they would have equal returns 
D) cannot determine from the information given 
A) lower than Stock B 
B) higher than Stock B 
C) they would have equal returns 
D) cannot determine from the information given

Question 18

In comparing the deviations of returns,which one of the following assets has historically had the largest standard deviation of annual returns?

Accepted Answer

A) large company stocks 
B) long-term corporate bonds 
C) long-term government bonds 
D) U.S.Treasury bills 
A) large company stocks 
B) long-term corporate bonds 
C) long-term government bonds 
D) U.S.Treasury bills

Question 19

The risk cause 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 
E) none of the above 
A) interest rate risk 
B) business risk 
C) purchasing power risk 
D) financial risk 
E) none of the above

Question 20

In an efficient market:

Accepted Answer

A) it is fairly easy to find stocks whose prices do not fairly reflect the present value of future expected cash flows 
B) unexpected news will cause a rapid change in prices 
C) information flows are random,both in timing and in content 
D) all the above 
A) it is fairly easy to find stocks whose prices do not fairly reflect the present value of future expected cash flows 
B) unexpected news will cause a rapid change in prices 
C) information flows are random,both in timing and in content 
D) all the above

The benefits of diversification are greatest when asset returns have:

The security market line can be used to determine the expected return on a security based on the:

If a person requires greater return when risk increases,that person is said to be:

Variations in operating income over time because of variations in unit sales,price,cost margins,and/or fixed expenses are called:

Because of portfolio effect,the most significant factor related to the risk of any investment is its:

If we assume that asset X has an expected return of 10 percent and a variance of 10 percent squared,then its coefficient of variation is:

The market portfolio is a portfolio that contains all risky assets.

A statistical concept that relates movements in one set of returns to movements in another set over time is called:

Which of the following statements is most correct?

The Capital Asset Pricing Model states that the expected return on an asset depends on its level of unsystematic risk.

Which of the following statements is false?

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.

As defined in accordance with efficient markets notions,a weak-form efficient market would be a market in which asset prices reflect all:

The total risk of a well-diversified international portfolio of stocks appears to be about what proportion of the risk of an average one-stock portfolio?

The historical percentage return for a single financial asset is equal to any dividends received minus the difference between the selling price and the purchase price,all divided by the purchase price.

If Stock A is considered to be of lower risk than Stock B,then Stock A should have returns that are

In comparing the deviations of returns,which one of the following assets has historically had the largest standard deviation of annual returns?

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

In an efficient market:

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 Valuation

Securities 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

The benefits of diversification are greatest when asset returns have:

The security market line can be used to determine the expected return on a security based on the:

If a person requires greater return when risk increases,that person is said to be:

Variations in operating income over time because of variations in unit sales,price,cost margins,and/or fixed expenses are called:

Because of portfolio effect,the most significant factor related to the risk of any investment is its:

If we assume that asset X has an expected return of 10 percent and a variance of 10 percent squared,then its coefficient of variation is:

The market portfolio is a portfolio that contains all risky assets.

A statistical concept that relates movements in one set of returns to movements in another set over time is called:

Which of the following statements is most correct?

The Capital Asset Pricing Model states that the expected return on an asset depends on its level of unsystematic risk.

Which of the following statements is false?

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.

As defined in accordance with efficient markets notions,a weak-form efficient market would be a market in which asset prices reflect all:

The total risk of a well-diversified international portfolio of stocks appears to be about what proportion of the risk of an average one-stock portfolio?

The historical percentage return for a single financial asset is equal to any dividends received minus the difference between the selling price and the purchase price,all divided by the purchase price.

If Stock A is considered to be of lower risk than Stock B,then Stock A should have returns that are

In comparing the deviations of returns,which one of the following assets has historically had the largest standard deviation of annual returns?

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

In an efficient market:

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 Valuation

Securities 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