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

The standard deviations of individual stocks are generally higher than the standard deviation of the market portfolio because individual stocks:

Which one of these is considered to be the safest investment?

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

What is the expected return on a portfolio that will decline in value by 13% in a recession, will increase by 16% in normal times, and will increase by 23% during boom times if each scenario has an equal likelihood of occurrence?

Which one of the following security classes has the highest standard deviation of returns?

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

A market index is used to measure performance of a broad-based portfolio of stocks.

All financial managers and economists believe that long-run historical returns are the best available measure of future returns.

Macro risks are faced by all common stock investors.

Which one of the following would you expect to represent the broadest-based index of U.S. stocks?

The major benefit of diversification is the:

The primary difference between U.S. Treasury bills and U.S. Treasury bonds is that the bills:

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

A firm is said to be countercyclical if its returns:

Which one of the following risks would be classified as a unique risk for an auto manufacturer?

What real rate of return is earned by a one-year investor in a bond that was purchased for $1,000, has a coupon rate of 8%, and was sold for $960 when the inflation rate was 6%?

A stock is expected to return 11% in a normal economy, 19% if the economy booms, and lose 8% if the economy moves into a recessionary period. The economists predict a 65% chance of a normal economy, a 25% chance of a boom, and a 10% chance of a recession. What is the expected return on the stock?

Stock A has 10 million shares outstanding and stock B has 5 million shares outstanding. Both stocks sell for $10 a share. What is their relative weighting if both stocks are represented in the S&P 500?

Which one of the following firms is likely to exhibit the least macro risk exposure?

What is the variance of returns of a 3-stock portfolio (with unequal weights 25%, 50%, and 25%) that produced returns of 20%, 25%, and 30%, respectively?