Question 1

When inflation is expected to be low,the risk premium on common stocks is expected to be low.

Accepted Answer

A) True 
 B)False

Question 2

In general,which stocks should be combined in a portfolio if the goal is the greatest reduction in overall risk?

Accepted Answer

A)  Stocks with returns that are positively correlated 
B)  Stocks with returns that are negatively correlated 
C)  Stocks with returns that are not correlated 
D)  Stocks that have the highest expected returns 
A)  Stocks with returns that are positively correlated 
B)  Stocks with returns that are negatively correlated 
C)  Stocks with returns that are not correlated 
D)  Stocks that have the highest expected returns

Question 3

The Dow Jones Industrial Average is:

Accepted Answer

A)  the most representative of stock market indexes. 
B)  an index of America's 500 major corporations. 
C)  an index of 30 major industrial stocks. 
D)  an equally weighted index of all stocks traded on the New York Stock Exchange. 
A)  the most representative of stock market indexes. 
B)  an index of America's 500 major corporations. 
C)  an index of 30 major industrial stocks. 
D)  an equally weighted index of all stocks traded on the New York Stock Exchange.

Question 4

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

Accepted Answer

A)  10.00 
B)  12.50 
C)  15.00 
D)  20.00 
A)  10.00 
B)  12.50 
C)  15.00 
D)  20.00

Question 5

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

Accepted Answer

A)  -1.89% 
B)  1.92% 
C)  5.66% 
D)  11.47% 
A)  -1.89% 
B)  1.92% 
C)  5.66% 
D)  11.47%

Question 6

Calculate the expected return,variance,and standard deviation for the following portfolio of four stocks,equally weighted:

Accepted Answer

The answer of Calculate the expected return,variance,and standard deviation for...

Question 7

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 8

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.

Question 9

Real rates of return are typically less than nominal rates of return due to:

Accepted Answer

A)  inflation. 
B)  capital gains. 
C)  dividend payments. 
D)  depreciation. 
A)  inflation. 
B)  capital gains. 
C)  dividend payments. 
D)  depreciation.

Question 10

Common stocks have offered an annual risk premium in nominal terms,but they have:

Accepted Answer

A)  also offered the risk premium in real terms. 
B)  not offered a risk premium in real terms. 
C)  not offered more than corporate bonds in real terms. 
D)  offered only slightly more than Treasury bonds in real terms. 
A)  also offered the risk premium in real terms. 
B)  not offered a risk premium in real terms. 
C)  not offered more than corporate bonds in real terms. 
D)  offered only slightly more than Treasury bonds in real terms.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

Unique or diversifiable risks apply spec

Question 13

Although Standard and Poor's Composite Index contains a small number of U.S.publicly traded stocks,the Index represents:

Accepted Answer

A)  all stocks that prefer to be equally weighted. 
B)  all stocks that prefer to be value-weighted. 
C)  approximately 50% of U.S. stocks traded, in value. 
D)  approximately 75% of U.S. stocks traded, in value. 
A)  all stocks that prefer to be equally weighted. 
B)  all stocks that prefer to be value-weighted. 
C)  approximately 50% of U.S. stocks traded, in value. 
D)  approximately 75% of U.S. stocks traded, in value.

Question 14

When viewing the long-term trend of volatility in U.S.stocks,it is readily apparent that:

Accepted Answer

A)  volatility has continually increased. 
B)  volatility has continually decreased. 
C)  volatility has offered little discernable trend. 
D)  volatility has remained constant for years. 
A)  volatility has continually increased. 
B)  volatility has continually decreased. 
C)  volatility has offered little discernable trend. 
D)  volatility has remained constant for years.

Question 15

The incremental risk to a portfolio from adding another stock:

Accepted Answer

A)  is always greater than the average portfolio risk. 
B)  is always less than the average portfolio risk. 
C)  is always positive. 
D)  is often positive but can be negative. 
A)  is always greater than the average portfolio risk. 
B)  is always less than the average portfolio risk. 
C)  is always positive. 
D)  is often positive but can be negative.

Question 16

Discuss the concept of a "negative risk asset."

Accepted Answer

A negative risk asset is one that reduce

Question 17

The risk that remains in a stock portfolio after efforts to diversify is known as unique risk.

Accepted Answer

A) True 
 B)False

Question 18

What is the approximate standard deviation of returns if over the past 4 years an investment returned 8.0%,-12.0%,-12.0%,and 15.0%?

Accepted Answer

A)  9.26% 
B)  10.26% 
C)  11.26% 
D)  12.01% 
A)  9.26% 
B)  10.26% 
C)  11.26% 
D)  12.01%

Question 19

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

Accepted Answer

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

Question 20

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

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

When inflation is expected to be low,the risk premium on common stocks is expected to be low.

In general,which stocks should be combined in a portfolio if the goal is the greatest reduction in overall risk?

The Dow Jones Industrial Average is:

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

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

Calculate the expected return,variance,and standard deviation for the following portfolio of four stocks,equally weighted:

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

Investment risk can best be described as the:

Real rates of return are typically less than nominal rates of return due to:

Common stocks have offered an annual risk premium in nominal terms,but they have:

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

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

Although Standard and Poor's Composite Index contains a small number of U.S.publicly traded stocks,the Index represents:

When viewing the long-term trend of volatility in U.S.stocks,it is readily apparent that:

The incremental risk to a portfolio from adding another stock:

Discuss the concept of a "negative risk asset."

The risk that remains in a stock portfolio after efforts to diversify is known as unique risk.

What is the approximate standard deviation of returns if over the past 4 years an investment returned 8.0%,-12.0%,-12.0%,and 15.0%?

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

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

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters