Question 1

The total risk of a well-diversified portfolio of U.S.stocks appears to be about what proportion of the risk of an average one-stock portfolio?

Accepted Answer

A) one-third 
B) one-half 
C) two-thirds 
D) three-fourths 
A) one-third 
B) one-half 
C) two-thirds 
D) three-fourths

Question 2

If a market is semi-strong form efficient, it also is by definition weak-form efficient.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is most correct?

Accepted Answer

A) the security market line graphically shows the expected return and systematic risk relationship. 
B) unsystematic risk is the major determinant of returns for individual assets. 
C) assets that have greater systematic risk than the market have betas smaller greater than 01.0. 
D) all of the above statements are correct. 
A) the security market line graphically shows the expected return and systematic risk relationship. 
B) unsystematic risk is the major determinant of returns for individual assets. 
C) assets that have greater systematic risk than the market have betas smaller greater than 01.0. 
D) all of the above statements are correct.

Question 4

The strong-form efficient market implies that:

Accepted Answer

A) no investors can consistently beat the market after adjusting for risk differences 
B) stock prices reflect all public and private knowledge 
C) even corporate officers and insiders cannot earn above-average, risk-adjusted profits 
D) more than oneall of the above 
A) no investors can consistently beat the market after adjusting for risk differences 
B) stock prices reflect all public and private knowledge 
C) even corporate officers and insiders cannot earn above-average, risk-adjusted profits 
D) more than oneall of the above

Question 5

Which of the following statements is most correct?

Accepted Answer

A) The probability of an event occurring is the percentage of a given outcome. 
B) A skewed probability distribution shows all possible outcomes and associated probabilities for a given event. 
C) The standard evaluation measures the dispersion around the expected value. 
D) The constant of variation is a measure of relative dispersion used in comparing the risk of assets with differing expected returns. 
E) none of the above 
A) The probability of an event occurring is the percentage of a given outcome. 
B) A skewed probability distribution shows all possible outcomes and associated probabilities for a given event. 
C) The standard evaluation measures the dispersion around the expected value. 
D) The constant of variation is a measure of relative dispersion used in comparing the risk of assets with differing expected returns. 
E) none of the above

Question 6

Future returns and risk cannot be predicted precisely from past measures.

Accepted Answer

A) True 
 B)False

Question 7

If a financial asset has a historical variance of 16%, then its standard deviation must be 4%.

Accepted Answer

A) True 
 B)False

Question 8

If the _____________ of a stock is known, an investor can use the security market line to determine the expected return on that stock.

Accepted Answer

A) standard deviation 
B) beta 
C) coefficient of variation 
D) unsystematic risk 
A) standard deviation 
B) beta 
C) coefficient of variation 
D) unsystematic risk

Question 9

The coefficient of variation is a measure of total return on a stock.

Accepted Answer

A) True 
 B)False

Question 10

The benefits of diversification are greatest when asset returns have positive correlations.

Accepted Answer

A) True 
 B)False

Question 11

Unsystematic risk is also known as:

Accepted Answer

A) market risk 
B) nondiversifiable risk 
C) firm-specific risk 
D) macroeconomic risk 
A) market risk 
B) nondiversifiable risk 
C) firm-specific risk 
D) macroeconomic risk

Question 12

A stock that went from $40 per share at the beginning of the year to $45 at the end of the year and paid a $2 dividend provided an investor with a 14% return.

Accepted Answer

A) True 
 B)False

Question 13

The only relevant risk for investors that hold diversified portfolios of securities is nondiversifiable risk.

Accepted Answer

A) True 
 B)False

Question 14

The expected rate of return on a portfolio is the weighted average of the expected returns of the individual assets in the portfolio.

Accepted Answer

A) True 
 B)False

Question 15

A stock that went from $40 per share at the beginning of the year to $45 at the end of the year and paid a $2 dividend provided an investor with a ____ return.

Accepted Answer

A) 8.75% 
B) 14% 
C) 17.5% 
D) 7% 
E) none of the above 
A) 8.75% 
B) 14% 
C) 17.5% 
D) 7% 
E) none of the above

Question 16

Standard deviation is the square root of the variance.

Accepted Answer

A) True 
 B)False

Question 17

Most market risk can be eliminated through diversification.

Accepted Answer

A) True 
 B)False

Question 18

As defined in accordance with efficient markets notions, a strong-form efficient market would be a market in which asset prices reflect all:

Accepted Answer

A) past information 
B) current information 
C) public information 
D) public and private information 
A) past information 
B) current information 
C) public information 
D) public and private information

Question 19

Which of the following is not required to compute the standard deviation of a two-stock portfolio? Formula is not in the chapter

Accepted Answer

A) the variance in returns on each stock 
B) the amount invested in each stock 
C) the correlation between the returns on each stock 
D) the expected return on a risk-free asset 
A) the variance in returns on each stock 
B) the amount invested in each stock 
C) the correlation between the returns on each stock 
D) the expected return on a risk-free asset

Question 20

Which of the following statements is most correct?

Accepted Answer

A) Combining positively correlated assets having the same expected return results in a portfolio with the same level of expected return and a lower level of risk. 
B) Combining negatively correlated assets having the same expected return results in a portfolio with the same level of expected return and a lower level of risk. 
C) Combining positively correlated assets having the same expected return results in a portfolio with a lower level of expected return and a lower level of risk. 
D) Combining negatively correlated assets having the same expected return results in a portfolio with a lower level of expected return and a lower level of risk. 
E) all of the above 
A) Combining positively correlated assets having the same expected return results in a portfolio with the same level of expected return and a lower level of risk. 
B) Combining negatively correlated assets having the same expected return results in a portfolio with the same level of expected return and a lower level of risk. 
C) Combining positively correlated assets having the same expected return results in a portfolio with a lower level of expected return and a lower level of risk. 
D) Combining negatively correlated assets having the same expected return results in a portfolio with a lower level of expected return and a lower level of risk. 
E) all of the above

The total risk of a well-diversified portfolio of U.S.stocks appears to be about what proportion of the risk of an average one-stock portfolio?

If a market is semi-strong form efficient, it also is by definition weak-form efficient.

Which of the following statements is most correct?

The strong-form efficient market implies that:

Which of the following statements is most correct?

Future returns and risk cannot be predicted precisely from past measures.

If a financial asset has a historical variance of 16%, then its standard deviation must be 4%.

If the _____________ of a stock is known, an investor can use the security market line to determine the expected return on that stock.

The coefficient of variation is a measure of total return on a stock.

The benefits of diversification are greatest when asset returns have positive correlations.

Unsystematic risk is also known as:

A stock that went from $40 per share at the beginning of the year to $45 at the end of the year and paid a $2 dividend provided an investor with a 14% return.

The only relevant risk for investors that hold diversified portfolios of securities is nondiversifiable risk.

The expected rate of return on a portfolio is the weighted average of the expected returns of the individual assets in the portfolio.

A stock that went from $40 per share at the beginning of the year to $45 at the end of the year and paid a $2 dividend provided an investor with a ____ return.

Standard deviation is the square root of the variance.

Most market risk can be eliminated through diversification.

As defined in accordance with efficient markets notions, a strong-form efficient market would be a market in which asset prices reflect all:

Which of the following is not required to compute the standard deviation of a two-stock portfolio? Formula is not in the chapter

Which of the following statements is most correct?

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Bonds and Stocks: Characteristics and Valuation

Securities Markets

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

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Exam 12: Financial Return and Risk Concepts

The total risk of a well-diversified portfolio of U.S.stocks appears to be about what proportion of the risk of an average one-stock portfolio?

If a market is semi-strong form efficient, it also is by definition weak-form efficient.

Which of the following statements is most correct?

The strong-form efficient market implies that:

Which of the following statements is most correct?

Future returns and risk cannot be predicted precisely from past measures.

If a financial asset has a historical variance of 16%, then its standard deviation must be 4%.

If the _____________ of a stock is known, an investor can use the security market line to determine the expected return on that stock.

The coefficient of variation is a measure of total return on a stock.

The benefits of diversification are greatest when asset returns have positive correlations.

Unsystematic risk is also known as:

A stock that went from $40 per share at the beginning of the year to $45 at the end of the year and paid a $2 dividend provided an investor with a 14% return.

The only relevant risk for investors that hold diversified portfolios of securities is nondiversifiable risk.

The expected rate of return on a portfolio is the weighted average of the expected returns of the individual assets in the portfolio.

A stock that went from $40 per share at the beginning of the year to $45 at the end of the year and paid a $2 dividend provided an investor with a ____ return.

Standard deviation is the square root of the variance.

Most market risk can be eliminated through diversification.

As defined in accordance with efficient markets notions, a strong-form efficient market would be a market in which asset prices reflect all:

Which of the following is not required to compute the standard deviation of a two-stock portfolio? Formula is not in the chapter

Which of the following statements is most correct?

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Bonds and Stocks: Characteristics and Valuation

Securities Markets

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters