Question 1

If the standard deviation of a portfolio's returns is known to be 30%,then its variance is:

Accepted Answer

A)  5.48% 
B)  5.48% squared 
C)  900.00% 
D)  900.00% squared 
A)  5.48% 
B)  5.48% squared 
C)  900.00% 
D)  900.00% squared

Question 2

The market experienced a volatility spike:

Accepted Answer

A)  during the Great Crash of 1929. 
B)  during the dot-com crash. 
C)  during the banking crisis of 2007-2009. 
D)  all of these. 
A)  during the Great Crash of 1929. 
B)  during the dot-com crash. 
C)  during the banking crisis of 2007-2009. 
D)  all of these.

Question 3

If a project's expected return is 15%,which represents a 35% return in a booming economy and a 5% return in a stagnant economy,what is the probability of a booming economy?

Accepted Answer

A)  18.33% 
B)  25.00% 
C)  33.33% 
D)  50.00% 
A)  18.33% 
B)  25.00% 
C)  33.33% 
D)  50.00%

Question 4

A stock that is considered to be a positive risk asset is added to a portfolio.As a result,the portfolio will:

Accepted Answer

A)  have lower average returns. 
B)  have a lower variance of returns. 
C)  have a higher volatility of returns. 
D)  have a lower correlation of returns with stock market indexes. 
A)  have lower average returns. 
B)  have a lower variance of returns. 
C)  have a higher volatility of returns. 
D)  have a lower correlation of returns with stock market indexes.

Question 5

Market risk can be eliminated in a stock portfolio through diversification.

Accepted Answer

A) True 
 B)False

Question 6

For the period between 1900 and 2000,the risk premium of Italy is higher than that of the United States.

Accepted Answer

A) True 
 B)False

Question 7

What is the approximate variance of returns if over the past 3 years an investment returned 8.0%,-12.0%,and 15.0%?

Accepted Answer

A)  31 
B)  131 
C)  182 
D)  961 
A)  31 
B)  131 
C)  182 
D)  961

Question 8

What is the percentage return on a stock that was purchased for $40.00,paid no dividend after one year,and was then sold for $39.00?

Accepted Answer

A)  -2.50% 
B)  2.50% 
C)  5.00% 
D)  7.50% 
A)  -2.50% 
B)  2.50% 
C)  5.00% 
D)  7.50%

Question 9

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

Accepted Answer

A)  the Dow was up 14% during today's trading. 
B)  14 of the Dow's 30 stocks increased in price today. 
C)  a share of Dow stock went up by $14 today. 
D)  the Dow index increased by 14 points in today's trading. 
A)  the Dow was up 14% during today's trading. 
B)  14 of the Dow's 30 stocks increased in price today. 
C)  a share of Dow stock went up by $14 today. 
D)  the Dow index increased by 14 points in today's trading.

Question 10

One common reason for reporting standard deviations rather than variances is that standard deviations:

Accepted Answer

A)  are lower. 
B)  are stated in understandable units. 
C)  account properly for negative returns. 
D)  take probability estimates into consideration. 
A)  are lower. 
B)  are stated in understandable units. 
C)  account properly for negative returns. 
D)  take probability estimates into consideration.

Question 11

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

Accepted Answer

It is relatively easy for an investor to

Question 12

A stock investor owns a diversified portfolio of 15 stocks.What will be the likely effect on portfolio standard deviation from adding one more stock?

Accepted Answer

A)  A slight increase will occur. 
B)  A large increase will occur. 
C)  A slight decrease will occur. 
D)  A large decrease will occur. 
A)  A slight increase will occur. 
B)  A large increase will occur. 
C)  A slight decrease will occur. 
D)  A large decrease will occur.

Question 13

Which of the following statements is incorrect concerning stock indexes?

Accepted Answer

A)  They have been developed for foreign stocks. 
B)  They have been developed for smaller companies. 
C)  Indexes include all common stocks. 
D)  Some indexes are equally weighted. 
A)  They have been developed for foreign stocks. 
B)  They have been developed for smaller companies. 
C)  Indexes include all common stocks. 
D)  Some indexes are equally weighted.

Question 14

Which of the following companies might you expect to be exposed to less macro risk?

Accepted Answer

A)  A large producer of flour 
B)  A regional airline 
C)  A major commercial bank 
D)  A machine tool manufacturer 
A)  A large producer of flour 
B)  A regional airline 
C)  A major commercial bank 
D)  A machine tool manufacturer

Question 15

Average returns on high-risk assets are higher than those on low-risk assets.

Accepted Answer

A) True 
 B)False

Question 16

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 17

The appropriate opportunity cost of capital is the return that investors give up on alternative investments with:

Accepted Answer

A)  the same risk. 
B)  the risk-free return. 
C)  the expected return on the S&P 500 index. 
D)  the normal, common stock risk premium. 
A)  the same risk. 
B)  the risk-free return. 
C)  the expected return on the S&P 500 index. 
D)  the normal, common stock risk premium.

Question 18

Which of the following statements seems most appropriate when the Dow Jones Industrial Average increases by 2%?

Accepted Answer

A)  All stocks on the exchange increased by 2%. 
B)  Only the 30 DJIA stocks increased by 2%. 
C)  A broad-based market indicator was up by 2%. 
D)  The S&P 500 index increased by 2%. 
A)  All stocks on the exchange increased by 2%. 
B)  Only the 30 DJIA stocks increased by 2%. 
C)  A broad-based market indicator was up by 2%. 
D)  The S&P 500 index increased by 2%.

Question 19

Long-term corporate bonds are the only portfolio of securities found to be riskier than common stocks.

Accepted Answer

A) True 
 B)False

Question 20

The S&P 500 accounts for nearly 75% of the total value of stocks traded in the United States.

Accepted Answer

A) True 
 B)False

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

If the standard deviation of a portfolio's returns is known to be 30%,then its variance is:

The market experienced a volatility spike:

If a project's expected return is 15%,which represents a 35% return in a booming economy and a 5% return in a stagnant economy,what is the probability of a booming economy?

A stock that is considered to be a positive risk asset is added to a portfolio.As a result,the portfolio will:

Market risk can be eliminated in a stock portfolio through diversification.

For the period between 1900 and 2000,the risk premium of Italy is higher than that of the United States.

What is the approximate variance of returns if over the past 3 years an investment returned 8.0%,-12.0%,and 15.0%?

What is the percentage return on a stock that was purchased for $40.00,paid no dividend after one year,and was then sold for $39.00?

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

One common reason for reporting standard deviations rather than variances is that standard deviations:

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

A stock investor owns a diversified portfolio of 15 stocks.What will be the likely effect on portfolio standard deviation from adding one more stock?

Which of the following statements is incorrect concerning stock indexes?

Which of the following companies might you expect to be exposed to less macro risk?

Average returns on high-risk assets are higher than those on low-risk assets.

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

The appropriate opportunity cost of capital is the return that investors give up on alternative investments with:

Which of the following statements seems most appropriate when the Dow Jones Industrial Average increases by 2%?

Long-term corporate bonds are the only portfolio of securities found to be riskier than common stocks.

The S&P 500 accounts for nearly 75% of the total value of stocks traded in the United States.

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