Question 1

The standard deviation of a portfolio will tend to increase when

Accepted Answer

A) the portfolio concentration in a single cyclical industry increases. 
B) one of two stocks related to the airline industry is replaced with a third stock that is unrelated to any other stock in the portfolio. 
C) a risky asset in the portfolio is replaced with U.S.Treasury bills. 
D) the weights of the various diverse securities become more evenly distributed. 
E) short-term bonds are replaced with Treasury Bills. 
A) the portfolio concentration in a single cyclical industry increases. 
B) one of two stocks related to the airline industry is replaced with a third stock that is unrelated to any other stock in the portfolio. 
C) a risky asset in the portfolio is replaced with U.S.Treasury bills. 
D) the weights of the various diverse securities become more evenly distributed. 
E) short-term bonds are replaced with Treasury Bills. A

Question 2

The systematic risk of the market is assigned a

Accepted Answer

A) beta of 1. 
B) beta of 0. 
C) standard deviation of 1. 
D) standard deviation of 0. 
E) variance of 1. 
A) beta of 1. 
B) beta of 0. 
C) standard deviation of 1. 
D) standard deviation of 0. 
E) variance of 1. A

Question 3

The beta of a security is calculated by dividing the

Accepted Answer

A) variance of the market by the covariance of the security with the market. 
B) correlation of the security with the market by the variance of the security. 
C) variance of the market by the correlation of the security with the market. 
D) covariance of the security with the market by the variance of the market. 
E) covariance of the security with the market by the variance of the security. 
A) variance of the market by the covariance of the security with the market. 
B) correlation of the security with the market by the variance of the security. 
C) variance of the market by the correlation of the security with the market. 
D) covariance of the security with the market by the variance of the market. 
E) covariance of the security with the market by the variance of the security. D

Question 4

The risk of an individual security that will be compensated by the market depends upon the

Accepted Answer

A) standard deviation of that security. 
B) covariance of that security with the market. 
C) expected rate of return on that security. 
D) security's historical variance. 
E) industry most associated with that security. 
A) standard deviation of that security. 
B) covariance of that security with the market. 
C) expected rate of return on that security. 
D) security's historical variance. 
E) industry most associated with that security.

Question 5

The variance of Stock A is 0.007242,the variance of Stock B is 0.020504,and the covariance between the two is 0.0019.What is the correlation coefficient?

Accepted Answer

A) 0)1487 
B) 0)0929 
C) 0)0891 
D) 0)1559 
E) 0)1643 
A) 0)1487 
B) 0)0929 
C) 0)0891 
D) 0)1559 
E) 0)1643

Question 6

The primary purpose of portfolio diversification is to

Accepted Answer

A) increase returns and risks. 
B) eliminate all risks. 
C) eliminate asset-specific risk. 
D) lower both returns and risks. 
E) eliminate systematic risk. 
A) increase returns and risks. 
B) eliminate all risks. 
C) eliminate asset-specific risk. 
D) lower both returns and risks. 
E) eliminate systematic risk.

Question 7

A portfolio contains Stocks A,B,C,and D with betas of 0.92,1.28,1.07 and 1.52 for A through D,respectively.Stocks A and B have portfolio weights of 35 percent each.Stocks C and D have equal weights.What is the portfolio beta?

Accepted Answer

A) 1.2147 
B) 1.1585 
C) 1.1099 
D) 1.0822 
E) 1.0131 
A) 1.2147 
B) 1.1585 
C) 1.1099 
D) 1.0822 
E) 1.0131

Question 8

A portfolio worth $5,500 is invested in Stocks A and B plus a risk-free asset.A total of $2,500 is invested in Stock A with a beta of 1.27.Stock B has a beta of 0.89.How much needs to be invested in Stock B if the goal is to create a portfolio that will mimic the entire market?

Accepted Answer

A) −$894.20 
B) $2,266.67 
C) $1,482.08 
D) $2,612.36 
E) $3,408.15 
A) −$894.20 
B) $2,266.67 
C) $1,482.08 
D) $2,612.36 
E) $3,408.15

Question 9

For an individual investor,the ideal portfolio could best be described as the portfolio that

Accepted Answer

A) has the lowest standard deviation given a specific expected rate of return. 
B) lies above and to the left of the feasible set. 
C) produces the highest rate of return. 
D) qualifies as the minimum variance portfolio. 
E) lies within the feasible set. 
A) has the lowest standard deviation given a specific expected rate of return. 
B) lies above and to the left of the feasible set. 
C) produces the highest rate of return. 
D) qualifies as the minimum variance portfolio. 
E) lies within the feasible set.

Question 10

Which statement correctly applies to the feasible set of returns for a portfolio consisting of domestic stocks,A and B? Assume that the expected returns are plotted against standard deviations.

Accepted Answer

A) Any combination of Stock A and Stock B that plot to the right of the minimum variance portfolio is an efficient portfolio. 
B) Given any specific level of risk,the maximum obtainable rate of return will plot on the efficient frontier. 
C) The minimum variance portfolio will move to the right on the risk-return graph if foreign securities are added to the portfolio. 
D) To obtain the highest possible return,the portfolio return and standard deviation should plot above the feasible set. 
E) The higher the correlation between Stocks A and B,the greater the bend in the curve of the feasible set. 
A) Any combination of Stock A and Stock B that plot to the right of the minimum variance portfolio is an efficient portfolio. 
B) Given any specific level of risk,the maximum obtainable rate of return will plot on the efficient frontier. 
C) The minimum variance portfolio will move to the right on the risk-return graph if foreign securities are added to the portfolio. 
D) To obtain the highest possible return,the portfolio return and standard deviation should plot above the feasible set. 
E) The higher the correlation between Stocks A and B,the greater the bend in the curve of the feasible set.

Question 11

The standard deviation of a risk-free asset is

Accepted Answer

A) 0) 
B) −1. 
C) +1. 
D) between 0 and −1. 
E) between 0 and +1. 
A) 0) 
B) −1. 
C) +1. 
D) between 0 and −1. 
E) between 0 and +1.

Question 12

The rate of return on the common stock of Flowers by Flo is expected to be 13 percent in a boom economy,11 percent in a normal economy,and only 6 percent in a recessionary economy.The probabilities of these economic states are 15 percent for a boom,80 percent for a normal economy,and 5 percent for a recession.What is the variance of the returns on this stock?

Accepted Answer

A) 0)000185 
B) 0)001580 
C) 0)001963 
D) 0)000301 
E) 0)000471 
A) 0)000185 
B) 0)001580 
C) 0)001963 
D) 0)000301 
E) 0)000471

Question 13

The separation principle states that an investor will

Accepted Answer

A) choose any efficient portfolio and invest some amount in the riskless asset to generate the expected return. 
B) never choose to invest in the riskless asset because the expected return on the riskless asset is lower over time. 
C) invest only in the riskless asset and tangency portfolio,choosing the weights of each based on his/her individual risk tolerance. 
D) randomly select any efficient portfolio. 
E) select a portfolio based solely on his/her desired rate of return while ignoring the associated risks of their selection. 
A) choose any efficient portfolio and invest some amount in the riskless asset to generate the expected return. 
B) never choose to invest in the riskless asset because the expected return on the riskless asset is lower over time. 
C) invest only in the riskless asset and tangency portfolio,choosing the weights of each based on his/her individual risk tolerance. 
D) randomly select any efficient portfolio. 
E) select a portfolio based solely on his/her desired rate of return while ignoring the associated risks of their selection.

Question 14

Which one of these measures the interrelationship between two securities?

Accepted Answer

A) Standard deviation 
B) Variance 
C) Beta 
D) Covariance 
E) Alpha 
A) Standard deviation 
B) Variance 
C) Beta 
D) Covariance 
E) Alpha

Question 15

If a stock portfolio is well diversified,then the portfolio variance

Accepted Answer

A) must be equal to or greater than the variance of the least risky stock in the portfolio. 
B) will be a weighted average of the variances of the individual securities in the portfolio. 
C) will equal the variance of the most volatile stock in the portfolio. 
D) will be an arithmetic average of the variances of the individual securities in the portfolio. 
E) may be less than the variance of the least risky stock in the portfolio. 
A) must be equal to or greater than the variance of the least risky stock in the portfolio. 
B) will be a weighted average of the variances of the individual securities in the portfolio. 
C) will equal the variance of the most volatile stock in the portfolio. 
D) will be an arithmetic average of the variances of the individual securities in the portfolio. 
E) may be less than the variance of the least risky stock in the portfolio.

Question 16

Stock A is expected to return 14 percent in a normal economy and lose 21 percent in a recession.Stock B deals with inferior goods and has expected returns of 6 percent in a normal economy and 15 percent in a recession.The probability of a recession occurring is 25 percent with a zero probability of a boom.What is the standard deviation of a portfolio that is equally weighted between the two stocks?

Accepted Answer

A) 5)63% 
B) 6)08% 
C) 4)29% 
D) 5)13% 
E) 6)36% 
A) 5)63% 
B) 6)08% 
C) 4)29% 
D) 5)13% 
E) 6)36%

Question 17

Stock A has a beta of 0.87 and an expected return of 9.21 percent.Stock B has a beta of 1.36 and an expected return of 10.58 percent.Stock C has a beta of 1.12 and an expected return of 10.68 percent.The risk-free rate is 2.7 percent,and the market risk premium is 6.8 percent.Which of these stocks are underpriced?

Accepted Answer

A) A only 
B) C only 
C) A and B only 
D) B and C only 
E) A and C only 
A) A only 
B) C only 
C) A and B only 
D) B and C only 
E) A and C only

Question 18

The probability of the economy booming is 24 percent.Otherwise,the economy will be normal.Stock G is expected to return 19 percent in a boom and 12 percent in a normal economy.Stock H is expected to return 9 percent in a boom and 8 percent in a normal economy.What is the variance of a portfolio consisting of $3,800 of stock G and $7,400 of stock H?

Accepted Answer

A) 0)000193 
B) 0)000168 
C) 0)000219 
D) 0)001387 
E) 0)001402 
A) 0)000193 
B) 0)000168 
C) 0)000219 
D) 0)001387 
E) 0)001402

Question 19

The intercept point of the security market line is the rate of return that corresponds to

Accepted Answer

A) the market rate of return. 
B) the beta of the market. 
C) a value of one. 
D) a value of zero. 
E) the risk-free rate. 
A) the market rate of return. 
B) the beta of the market. 
C) a value of one. 
D) a value of zero. 
E) the risk-free rate.

Question 20

According to the capital asset pricing model,the expected return on a security is

Accepted Answer

A) negatively and linearly related to the security's beta. 
B) positively and linearly related to the security's beta. 
C) positively and nonlinearly related to the security's beta. 
D) positively and linearly related to the security's variance. 
E) negatively and nonlinearly related to the security's beta. 
A) negatively and linearly related to the security's beta. 
B) positively and linearly related to the security's beta. 
C) positively and nonlinearly related to the security's beta. 
D) positively and linearly related to the security's variance. 
E) negatively and nonlinearly related to the security's beta.

The standard deviation of a portfolio will tend to increase when

The systematic risk of the market is assigned a

The beta of a security is calculated by dividing the

The risk of an individual security that will be compensated by the market depends upon the

The variance of Stock A is 0.007242,the variance of Stock B is 0.020504,and the covariance between the two is 0.0019.What is the correlation coefficient?

The primary purpose of portfolio diversification is to

A portfolio contains Stocks A,B,C,and D with betas of 0.92,1.28,1.07 and 1.52 for A through D,respectively.Stocks A and B have portfolio weights of 35 percent each.Stocks C and D have equal weights.What is the portfolio beta?

A portfolio worth $5,500 is invested in Stocks A and B plus a risk-free asset.A total of $2,500 is invested in Stock A with a beta of 1.27.Stock B has a beta of 0.89.How much needs to be invested in Stock B if the goal is to create a portfolio that will mimic the entire market?

For an individual investor,the ideal portfolio could best be described as the portfolio that

Which statement correctly applies to the feasible set of returns for a portfolio consisting of domestic stocks,A and B? Assume that the expected returns are plotted against standard deviations.

The standard deviation of a risk-free asset is

The separation principle states that an investor will

Which one of these measures the interrelationship between two securities?

If a stock portfolio is well diversified,then the portfolio variance

The intercept point of the security market line is the rate of return that corresponds to

According to the capital asset pricing model,the expected return on a security is

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Risk Amcq Return: Lessons From Market History

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Capital Structure: Basic Concepts

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Exam 11: Return Amcq Risk: the Capital Asset Pricing Model Capm

The standard deviation of a portfolio will tend to increase when

The systematic risk of the market is assigned a

The beta of a security is calculated by dividing the

The risk of an individual security that will be compensated by the market depends upon the

The variance of Stock A is 0.007242,the variance of Stock B is 0.020504,and the covariance between the two is 0.0019.What is the correlation coefficient?

The primary purpose of portfolio diversification is to

A portfolio contains Stocks A,B,C,and D with betas of 0.92,1.28,1.07 and 1.52 for A through D,respectively.Stocks A and B have portfolio weights of 35 percent each.Stocks C and D have equal weights.What is the portfolio beta?

A portfolio worth $5,500 is invested in Stocks A and B plus a risk-free asset.A total of $2,500 is invested in Stock A with a beta of 1.27.Stock B has a beta of 0.89.How much needs to be invested in Stock B if the goal is to create a portfolio that will mimic the entire market?

For an individual investor,the ideal portfolio could best be described as the portfolio that

Which statement correctly applies to the feasible set of returns for a portfolio consisting of domestic stocks,A and B? Assume that the expected returns are plotted against standard deviations.

The standard deviation of a risk-free asset is

The separation principle states that an investor will

Which one of these measures the interrelationship between two securities?

If a stock portfolio is well diversified,then the portfolio variance

The intercept point of the security market line is the rate of return that corresponds to

According to the capital asset pricing model,the expected return on a security is

Introduction to Corporate Finance

Financial Statements AMCQ Cash Flow

Financial Statements Analysis Amcq Financial Models

Discounted Cash Flow Valuation

Interest Rates AMCQ Bomcq Valuation

Stock Valuation

Net Present Value AMCQ Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, AMCQ Capital Budgeting

Risk Amcq Return: Lessons From Market History

Risk, cost of Capital, AMCQ Valuation

Efficient Capital Markets Amcq Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividemcqs AMCQ Other Payouts

Options Amcq Corporate Finance

Short-Term Finance Amcq Planning

Raising Capital

International Corporate Finance

Mergers Amcq Acquisitions Web Only

Filters