Question 1

Beta is a measure of

Accepted Answer

A) unique risk. 
B) total risk. 
C) market risk. 
D) liquidity risk. 
A) unique risk. 
B) total risk. 
C) market risk. 
D) liquidity risk.

Question 2

The type of the risk that can be eliminated by diversification is called

Accepted Answer

A) market risk. 
B) unique risk. 
C) interest rate risk. 
D) default risk. 
A) market risk. 
B) unique risk. 
C) interest rate risk. 
D) default risk.

Question 3

Treasury bills typically provide higher average returns, both in nominal terms and in real terms, than long-term government bonds.

Accepted Answer

A) True 
 B)False

Question 4

What has been the average annual nominal rate of interest on Treasury bills over the past 114 years (1900 to 2014)?

Accepted Answer

A) Less than 1 percent 
B) Between 1 percent and 2 percent 
C) Between 2 percent and 3 percent 
D) Greater than 3 percent 
A) Less than 1 percent 
B) Between 1 percent and 2 percent 
C) Between 2 percent and 3 percent 
D) Greater than 3 percent

Question 5

Stock X has a standard deviation of return of 10 percent.Stock Y has a standard deviation of return of 20 percent.The correlation coefficient between the two stocks is 0.5.If you invest 60 percent of your funds in stock X and 40 percent in stock Y, what is the standard deviation of your portfolio?

Accepted Answer

A) 10.3 percent 
B) 21.0 percent 
C) 12.2 percent 
D) 14.8 percent 
A) 10.3 percent 
B) 21.0 percent 
C) 12.2 percent 
D) 14.8 percent

Question 6

Define the term risk premium.

Accepted Answer

The difference between the sec

Question 7

Briefly explain what the beta of a stock means.

Accepted Answer

For each additional 1 percent change in

Question 8

A risk premium is the difference between a security's return and the Treasury bill return.

Accepted Answer

A) True 
 B)False

Question 9

If returns on two stocks tended to move in opposite directions, then the covariances and correlations on the two stocks would be negative.

Accepted Answer

A) True 
 B)False

Question 10

If the covariance between stock A and stock B is 100, the standard deviation of stock A is 10 percent and that of stock B is 20 percent, calculate the correlation coefficient between the two securities.

Accepted Answer

A) -0.5 
B) +1.0 
C) +0.5 
D) 0.0 
A) -0.5 
B) +1.0 
C) +0.5 
D) 0.0

Question 11

In the formula for calculating the variance of an N-stock portfolio, how many covariance and variance terms are there?

Accepted Answer

In the formula for calculating

Question 12

If the correlation coefficient between the returns on stock C and stock D is +1.0, the standard deviation of return for stock C is 15 percent, and that for stock D is 30 percent, calculate the covariance between stock C and stock D.

Accepted Answer

A) +45 
B) -450 
C) +450 
D) -45 
A) +45 
B) -450 
C) +450 
D) -45

Question 13

The annual returns for three years for stock B were 0 percent, 10 percent, and 26 percent.Annual returns for three years for the market portfolio were +6 percent, 18 percent, and 24 percent.Calculate the beta for the stock.

Accepted Answer

A) 0.75 
B) 1.36 
C) 1.00 
D) 0.74 
A) 0.75 
B) 1.36 
C) 1.00 
D) 0.74

Question 14

Which of the following countries has had the highest risk premium?

Accepted Answer

A) Germany 
B) Denmark 
C) United States 
D) Switzerland 
A) Germany 
B) Denmark 
C) United States 
D) Switzerland

Question 15

Which portfolio has had the highest average risk premium during the period 1900 to 2014?

Accepted Answer

A) Common stocks 
B) Government bonds 
C) Treasury bills 
D) None of the answers is correct. 
A) Common stocks 
B) Government bonds 
C) Treasury bills 
D) None of the answers is correct.

Question 16

For long-term U.S.government bonds, which risk concerns investors the most?

Accepted Answer

A) Interest rate risk 
B) Default risk 
C) Market risk 
D) Liquidity risk 
A) Interest rate risk 
B) Default risk 
C) Market risk 
D) Liquidity risk

Question 17

Discuss the importance of beta as a measure of risk.

Accepted Answer

Beta is a measure of market risk. It is

Question 18

For each additional 1 percent change in market return, the return on a stock having a beta of 2.2 changes, on average, by

Accepted Answer

A) 1.00 percent. 
B) 0.55 percent. 
C) 2.20 percent. 
D) 1.10 percent. 
A) 1.00 percent. 
B) 0.55 percent. 
C) 2.20 percent. 
D) 1.10 percent.

Question 19

What is the beta of a portfolio with a large number of randomly selected stocks?

Accepted Answer

The beta of a portfolio with a

Question 20

For a portfolio of N-stocks, the formula for portfolio variance contains

Accepted Answer

A) N covariance terms. 
B) N(N - 1)/2 different covariance terms. 
C) N2 covariance terms. 
D) N - 1 covariance terms. 
A) N covariance terms. 
B) N(N - 1)/2 different covariance terms. 
C) N2 covariance terms. 
D) N - 1 covariance terms.

Exam 7: Introduction to Risk and Return

Beta is a measure of

The type of the risk that can be eliminated by diversification is called

Treasury bills typically provide higher average returns, both in nominal terms and in real terms, than long-term government bonds.

What has been the average annual nominal rate of interest on Treasury bills over the past 114 years (1900 to 2014)?

Stock X has a standard deviation of return of 10 percent.Stock Y has a standard deviation of return of 20 percent.The correlation coefficient between the two stocks is 0.5.If you invest 60 percent of your funds in stock X and 40 percent in stock Y, what is the standard deviation of your portfolio?

Define the term risk premium.

Briefly explain what the beta of a stock means.

A risk premium is the difference between a security's return and the Treasury bill return.

If returns on two stocks tended to move in opposite directions, then the covariances and correlations on the two stocks would be negative.

If the covariance between stock A and stock B is 100, the standard deviation of stock A is 10 percent and that of stock B is 20 percent, calculate the correlation coefficient between the two securities.

In the formula for calculating the variance of an N-stock portfolio, how many covariance and variance terms are there?

If the correlation coefficient between the returns on stock C and stock D is +1.0, the standard deviation of return for stock C is 15 percent, and that for stock D is 30 percent, calculate the covariance between stock C and stock D.

The annual returns for three years for stock B were 0 percent, 10 percent, and 26 percent.Annual returns for three years for the market portfolio were +6 percent, 18 percent, and 24 percent.Calculate the beta for the stock.

Which of the following countries has had the highest risk premium?

Which portfolio has had the highest average risk premium during the period 1900 to 2014?

For long-term U.S.government bonds, which risk concerns investors the most?

Discuss the importance of beta as a measure of risk.

For each additional 1 percent change in market return, the return on a stock having a beta of 2.2 changes, on average, by

What is the beta of a portfolio with a large number of randomly selected stocks?

For a portfolio of N-stocks, the formula for portfolio variance contains

Introduction to Corporate Finance

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

Investment Strategy and Economic Rents

Agency Problems Compensation and Performance Measurement

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing Risk

Financial Analysis

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

Filters