Question 1

The historical record fails to show that investors have received a risk premium for holding risky assets.

Accepted Answer

A) True 
 B)False

Question 2

Industries that generally perform well when other industries are performing well are referred to as:

Accepted Answer

A)  diversified industries. 
B)  cyclical industries. 
C)  risk-free industries. 
D)  systematic risk industries. 
A)  diversified industries. 
B)  cyclical industries. 
C)  risk-free industries. 
D)  systematic risk industries.

Question 3

Cyclical stocks tend to perform well when other stocks are performing well also.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following concerns is likely to be most important to portfolio investors seeking diversification?

Accepted Answer

A)  total volatility of individual securities. 
B)  standard deviation of individual securities. 
C)  correlation of returns between securities. 
D)  achieving the risk-free rate of return. 
A)  total volatility of individual securities. 
B)  standard deviation of individual securities. 
C)  correlation of returns between securities. 
D)  achieving the risk-free rate of return.

Question 5

The primary difference between Canadian Treasury bills and Canadian Treasury bonds is that the bills:

Accepted Answer

A)  do not have default risk. 
B)  have more price volatility. 
C)  have a shorter maturity at time of issue. 
D)  offer a higher return. 
A)  do not have default risk. 
B)  have more price volatility. 
C)  have a shorter maturity at time of issue. 
D)  offer a higher return.

Question 6

Market interest rates have risen substantially in the five years since an investor purchased Treasury bonds that were offering a 7 percent return.If the investor sells now she is likely to receive:

Accepted Answer

A)  greater than a 7 percent total return. 
B)  less than a 7 percent total return. 
C)  a 7 percent total rate of return. 
D)  a 7 percent nominal return but less than a 7 percent real return. 
A)  greater than a 7 percent total return. 
B)  less than a 7 percent total return. 
C)  a 7 percent total rate of return. 
D)  a 7 percent nominal return but less than a 7 percent real return.

Question 7

Explain the concepts of unique risk,market risk,and how the total level of portfolio risk can change by adding additional securities.

Accepted Answer

Unique or diversifiable risks affect spe

Question 8

Although unique risk is present in differing amounts,individual stocks are:

Accepted Answer

A)  exposed to the same amount of market risk. 
B)  exposed to differing amounts of market risk also. 
C)  not exposed to market risk; only the general economy is subject to market risk. 
D)  able to diversify away their market risk. 
A)  exposed to the same amount of market risk. 
B)  exposed to differing amounts of market risk also. 
C)  not exposed to market risk; only the general economy is subject to market risk. 
D)  able to diversify away their market risk.

Question 9

Standard deviation can be calculated as the square of the variance.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements is true for a stock that sells now for $60,pays an annual dividend of $3.00,and experienced a 30 percent return on investment over the past year? Its price one year ago was:

Accepted Answer

A)  $42.00. 
B)  $46.15. 
C)  $48.46. 
D)  $56.10. 
A)  $42.00. 
B)  $46.15. 
C)  $48.46. 
D)  $56.10.

Question 11

"TSX up 14.Story at 6:00 p.m." This means that:

Accepted Answer

A)  The TSX was up 14 percent during today's trading. 
B)  14 of the TSX's 300 stocks increased in price today. 
C)  a share of TSX stock went up by $14 today. 
D)  The TSX index increased by 14 points in today's trading. 
A)  The TSX was up 14 percent during today's trading. 
B)  14 of the TSX's 300 stocks increased in price today. 
C)  a share of TSX stock went up by $14 today. 
D)  The TSX index increased by 14 points in today's trading.

Question 12

An estimation of the opportunity cost of capital for projects that have an "average" level of risk is the rate of return on:

Accepted Answer

A)  treasury bills. 
B)  the market portfolio. 
C)  the market portfolio minus the rate of return on treasury bills. 
D)  treasury bonds plus a maturity premium. 
A)  treasury bills. 
B)  the market portfolio. 
C)  the market portfolio minus the rate of return on treasury bills. 
D)  treasury bonds plus a maturity premium.

Question 13

Discuss the statement,"Only market risk matters to a diversified investor."

Accepted Answer

It is relatively easy for an investor to

Question 14

A stock is held one year,during which time its dividend yield was greater than its capital gains yield.For this stock,the percentage return:

Accepted Answer

A)  is positive. 
B)  is negative. 
C)  equals the dividend yield. 
D)  cannot be determined. 
A)  is positive. 
B)  is negative. 
C)  equals the dividend yield. 
D)  cannot be determined.

Question 15

The TSX 300 accounts for nearly 50 percent of the total value of stocks traded in Canada.

Accepted Answer

A) True 
 B)False

Question 16

Treasury bonds have provided a higher historical return than Treasury bills,which can be attributed to:

Accepted Answer

A)  greater default risk. 
B)  a higher level of unique risk. 
C)  greater price risk due to longer maturities. 
D)  the fact that they are less frequently traded than bills. 
A)  greater default risk. 
B)  a higher level of unique risk. 
C)  greater price risk due to longer maturities. 
D)  the fact that they are less frequently traded than bills.

Question 17

The risk premium that is offered on common stock is equal to the:

Accepted Answer

A)  expected return on the stock. 
B)  real rate of return on the stock. 
C)  excess of expected return over a risk-free return. 
D)  expected return on the S&P 500 index. 
A)  expected return on the stock. 
B)  real rate of return on the stock. 
C)  excess of expected return over a risk-free return. 
D)  expected return on the S&P 500 index.

Question 18

What is the standard deviation of a portfolio's returns if the mean return is 15 percent,the variance of returns is 184 percent,and there are three stocks in the portfolio?

Accepted Answer

A)  7.83 percent 
B)  13.56 percent 
C)  41.00 percent 
D)  225.00 percent 
A)  7.83 percent 
B)  13.56 percent 
C)  41.00 percent 
D)  225.00 percent

Question 19

What is the percentage return on a stock that was purchased for $40.00 and paid a $3.00 dividend after one year,then sold for $39.00?

Accepted Answer

A)  (2.50 percent) 
B)  2.50 percent 
C)  5.00 percent 
D)  7.50 percent 
A)  (2.50 percent) 
B)  2.50 percent 
C)  5.00 percent 
D)  7.50 percent

Question 20

Investment risk can best be described as the:

Accepted Answer

A)  dispersion of possible returns. 
B)  elimination of macro risk through diversification. 
C)  possibility of changes in the cost of capital. 
D)  level of systematic risk for an undiversified investor. 
A)  dispersion of possible returns. 
B)  elimination of macro risk through diversification. 
C)  possibility of changes in the cost of capital. 
D)  level of systematic risk for an undiversified investor.

Exam 11: Introduction to Risk, Return, and the Opportunity Cost of Capital

The historical record fails to show that investors have received a risk premium for holding risky assets.

Industries that generally perform well when other industries are performing well are referred to as:

Cyclical stocks tend to perform well when other stocks are performing well also.

Which of the following concerns is likely to be most important to portfolio investors seeking diversification?

The primary difference between Canadian Treasury bills and Canadian Treasury bonds is that the bills:

Market interest rates have risen substantially in the five years since an investor purchased Treasury bonds that were offering a 7 percent return.If the investor sells now she is likely to receive:

Explain the concepts of unique risk,market risk,and how the total level of portfolio risk can change by adding additional securities.

Although unique risk is present in differing amounts,individual stocks are:

Standard deviation can be calculated as the square of the variance.

Which of the following statements is true for a stock that sells now for $60,pays an annual dividend of $3.00,and experienced a 30 percent return on investment over the past year? Its price one year ago was:

"TSX up 14.Story at 6:00 p.m." This means that:

An estimation of the opportunity cost of capital for projects that have an "average" level of risk is the rate of return on:

Discuss the statement,"Only market risk matters to a diversified investor."

A stock is held one year,during which time its dividend yield was greater than its capital gains yield.For this stock,the percentage return:

The TSX 300 accounts for nearly 50 percent of the total value of stocks traded in Canada.

Treasury bonds have provided a higher historical return than Treasury bills,which can be attributed to:

The risk premium that is offered on common stock is equal to the:

What is the standard deviation of a portfolio's returns if the mean return is 15 percent,the variance of returns is 184 percent,and there are three stocks in the portfolio?

What is the percentage return on a stock that was purchased for $40.00 and paid a $3.00 dividend after one year,then sold for $39.00?

Investment risk can best be described as the:

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt and Payout Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters