Question 1

During the onset of the Financial Crisis between 2007 and 2008,an investor would have earned the lowest return if he or she had invested in

Accepted Answer

A) only stocks 
B) only Treasury bonds 
C) a portfolio consisting of 50% stocks and 50% Treasury bonds 
D) a non-interest bearing cash account 
E) none of the above 
A) only stocks 
B) only Treasury bonds 
C) a portfolio consisting of 50% stocks and 50% Treasury bonds 
D) a non-interest bearing cash account 
E) none of the above

Question 2

The risk cause by variations in interest expense unrelated to sales or operating income arising from changes in the level of interest rates in the economy is called:

Accepted Answer

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

Question 3

If the variance for Stock A is greater than the variance for Stock B,then the coefficient of variation for Stock A:

Accepted Answer

A) is greater than the coefficient of variation for Stock B 
B) is less than the coefficient of variation for Stock B 
C) is the same as the coefficient of variation for stock b 
D) cannot be determined by this information 
A) is greater than the coefficient of variation for Stock B 
B) is less than the coefficient of variation for Stock B 
C) is the same as the coefficient of variation for stock b 
D) cannot be determined by this information

Question 4

Investing in ____________ is a way for small investors to enjoy the benefits of professional management and diversification.

Accepted Answer

A) stocks 
B) bonds 
C) mutual funds 
D) none of the above 
A) stocks 
B) bonds 
C) mutual funds 
D) none of the above

Question 5

The greatest level of risk reduction through diversification can be achieved when combining two securities whose returns are perfectly negatively correlated.

Accepted Answer

A) True 
 B)False

Question 6

The term "ex-ante" refers to expected or forecasted information.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is not required to compute the expected return of a three-asset portfolio?

Accepted Answer

A) the amount invested in each stock 
B) the correlation between the returns on each stock 
C) the expected return on each stock 
D) all of the above are required 
A) the amount invested in each stock 
B) the correlation between the returns on each stock 
C) the expected return on each stock 
D) all of the above are required

Question 8

If the expected returns for Stock A are 3% and this year's returns are 3%,next year's returns would be

Accepted Answer

A) 3% 
B) 6% 
C) cannot say for certain 
A) 3% 
B) 6% 
C) cannot say for certain

Question 9

Systematic risk is rewarded with a premium in the market because:

Accepted Answer

A) it is associated with market movements which cannot be eliminated through diversification 
B) it is a microeconomic risk 
C) that risk is unique to a firm or an industry 
D) none of the above 
A) it is associated with market movements which cannot be eliminated through diversification 
B) it is a microeconomic risk 
C) that risk is unique to a firm or an industry 
D) none of the above

Question 10

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 14% return.

Accepted Answer

A) True 
 B)False

Question 11

If the expected return on Stock 1 is 6%,and the expected return on Stock 2 is 20%,the expected return on a two-asset portfolio that holds 10% of its funds in Stock 1 and 90% in Stock 2 is:

Accepted Answer

A) 11.52% 
B) 13% 
C) 18.6% 
D) 19.14% 
A) 11.52% 
B) 13% 
C) 18.6% 
D) 19.14%

Question 12

Between 1928 and 2008,the average annual return on Treasury Bills averaged _____%,while the average annual inflation rate averaged _____%.

Accepted Answer

A) 5.4,3.8 
B) 3.8,3.2 
C) 3.8,5.4 
D) none of the above 
A) 5.4,3.8 
B) 3.8,3.2 
C) 3.8,5.4 
D) none of the above

Question 13

If the variance in returns for Stock A is 400% and the expected return is 5%,then the coefficient of variation is:

Accepted Answer

A) 4 
B) 80 
C) .25 
D) cannot be determined by this information 
A) 4 
B) 80 
C) .25 
D) cannot be determined by this information

Question 14

According to the definitions given in the text,if Stock A has a standard deviation of 4% and Stock B has a standard deviation of 3% which stock is riskier?

Accepted Answer

A) Stock A 
B) Stock B 
C) they are equally risky 
D) cannot determine from the information given 
A) Stock A 
B) Stock B 
C) they are equally risky 
D) cannot determine from the information given

Question 15

If a financial asset has a historical variance of 4% squared,then its standard deviation must be 16%.

Accepted Answer

A) True 
 B)False

Question 16

If prices in a particular market fully reflect all public and private knowledge,the market is efficient in the:

Accepted Answer

A) weak form 
B) semi-strong form 
C) strong form 
D) both a and b 
A) weak form 
B) semi-strong form 
C) strong form 
D) both a and b

Question 17

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

Question 18

Research suggests that a portfolio of 20 or 30 different stocks has eliminated most of the portfolios systematic risk.

Accepted Answer

A) True 
 B)False

Question 19

If Stock A is considered to be of average risk for the market and Stock B is also considered of average risk for the market,then the

Accepted Answer

A) standard deviation for each of the stocks will be equal 
B) beta for each of the stocks will be equal 
C) coefficient of variation for each of the stocks will be equal 
D) cannot determine from the information given 
A) standard deviation for each of the stocks will be equal 
B) beta for each of the stocks will be equal 
C) coefficient of variation for each of the stocks will be equal 
D) cannot determine from the information given

Question 20

Assume the probability of a pessimistic,most likely and optimistic state of nature is .25,.55 and .20,and the returns associated with those states of nature are 5%,10%,and 13% for asset Y.Based on this information,the expected return,standard deviation,and coefficient of variation for asset Y are:

Accepted Answer

A) 10.50%,2.96% and 0.395 respectively 
B) 10.35%,2.86% and 0.345 respectively 
C) 9.55%,2.76% and 0.315 respectively 
D) 9.15%,2.66% and 0.295 respectively 
E) none of the above 
A) 10.50%,2.96% and 0.395 respectively 
B) 10.35%,2.86% and 0.345 respectively 
C) 9.55%,2.76% and 0.315 respectively 
D) 9.15%,2.66% and 0.295 respectively 
E) none of the above

During the onset of the Financial Crisis between 2007 and 2008,an investor would have earned the lowest return if he or she had invested in

The risk cause by variations in interest expense unrelated to sales or operating income arising from changes in the level of interest rates in the economy is called:

If the variance for Stock A is greater than the variance for Stock B,then the coefficient of variation for Stock A:

Investing in ____________ is a way for small investors to enjoy the benefits of professional management and diversification.

The greatest level of risk reduction through diversification can be achieved when combining two securities whose returns are perfectly negatively correlated.

The term "ex-ante" refers to expected or forecasted information.

Which of the following is not required to compute the expected return of a three-asset portfolio?

If the expected returns for Stock A are 3% and this year's returns are 3%,next year's returns would be

Systematic risk is rewarded with a premium in the market because:

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 14% return.

If the expected return on Stock 1 is 6%,and the expected return on Stock 2 is 20%,the expected return on a two-asset portfolio that holds 10% of its funds in Stock 1 and 90% in Stock 2 is:

Between 1928 and 2008,the average annual return on Treasury Bills averaged _%,while the average annual inflation rate averaged _%.

If the variance in returns for Stock A is 400% and the expected return is 5%,then the coefficient of variation is:

According to the definitions given in the text,if Stock A has a standard deviation of 4% and Stock B has a standard deviation of 3% which stock is riskier?

If a financial asset has a historical variance of 4% squared,then its standard deviation must be 16%.

If prices in a particular market fully reflect all public and private knowledge,the market is efficient in the:

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

Research suggests that a portfolio of 20 or 30 different stocks has eliminated most of the portfolios systematic risk.

If Stock A is considered to be of average risk for the market and Stock B is also considered of average risk for the market,then the

Assume the probability of a pessimistic,most likely and optimistic state of nature is .25,.55 and .20,and the returns associated with those states of nature are 5%,10%,and 13% for asset Y.Based on this information,the expected return,standard deviation,and coefficient of variation for asset Y are:

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

During the onset of the Financial Crisis between 2007 and 2008,an investor would have earned the lowest return if he or she had invested in

The risk cause by variations in interest expense unrelated to sales or operating income arising from changes in the level of interest rates in the economy is called:

If the variance for Stock A is greater than the variance for Stock B,then the coefficient of variation for Stock A:

Investing in ____________ is a way for small investors to enjoy the benefits of professional management and diversification.

The greatest level of risk reduction through diversification can be achieved when combining two securities whose returns are perfectly negatively correlated.

The term "ex-ante" refers to expected or forecasted information.

Which of the following is not required to compute the expected return of a three-asset portfolio?

If the expected returns for Stock A are 3% and this year's returns are 3%,next year's returns would be

Systematic risk is rewarded with a premium in the market because:

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 14% return.

If the expected return on Stock 1 is 6%,and the expected return on Stock 2 is 20%,the expected return on a two-asset portfolio that holds 10% of its funds in Stock 1 and 90% in Stock 2 is:

Between 1928 and 2008,the average annual return on Treasury Bills averaged _____%,while the average annual inflation rate averaged _____%.

If the variance in returns for Stock A is 400% and the expected return is 5%,then the coefficient of variation is:

According to the definitions given in the text,if Stock A has a standard deviation of 4% and Stock B has a standard deviation of 3% which stock is riskier?

If a financial asset has a historical variance of 4% squared,then its standard deviation must be 16%.

If prices in a particular market fully reflect all public and private knowledge,the market is efficient in the:

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

Research suggests that a portfolio of 20 or 30 different stocks has eliminated most of the portfolios systematic risk.

If Stock A is considered to be of average risk for the market and Stock B is also considered of average risk for the market,then the

Assume the probability of a pessimistic,most likely and optimistic state of nature is .25,.55 and .20,and the returns associated with those states of nature are 5%,10%,and 13% for asset Y.Based on this information,the expected return,standard deviation,and coefficient of variation for asset Y are:

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

Between 1928 and 2008,the average annual return on Treasury Bills averaged _%,while the average annual inflation rate averaged _%.