Question 1

A weak-form efficient market is one in which prices reflect all public knowledge, including past and current information.

Accepted Answer

A) True 
 B)False

Question 2

The effect on revenues and expenses from variations in the value of the U.S.dollar in terms of other currencies is called:

Accepted Answer

A) interest rate risk 
B) exchange rate risk 
C) purchasing power risk 
D) financial risk 
E) none of the above 
A) interest rate risk 
B) exchange rate risk 
C) purchasing power risk 
D) financial risk 
E) none of the above

Question 3

An aggressive (that is, higher risk) portfolio would have a beta of:

Accepted Answer

A) 1 
B) 0 
C) less than 1 but greater than 0 
D) more than 1 
A) 1 
B) 0 
C) less than 1 but greater than 0 
D) more than 1

Question 4

If Stock A has a higher standard deviation than Stock B, it will also have a greater coefficient of variation.

Accepted Answer

A) True 
 B)False

Question 5

Research on the weak-form efficient market suggests that:

Accepted Answer

A) past trends cannot be used to predict the future 
B) technical analysis has limited value 
C) stock prices follow a random walk 
D) more than oneall of the above 
A) past trends cannot be used to predict the future 
B) technical analysis has limited value 
C) stock prices follow a random walk 
D) more than oneall of the above

Question 6

If standard deviation is used to measure the risk of stocks, one problem that arises is the inability to tell which stock is riskier by looking at the standard deviation alone.

Accepted Answer

A) True 
 B)False

Question 7

Because of portfolio effect, the most significant factor related to the risk of any investment is its:

Accepted Answer

A) standard deviation 
B) coefficient of variation 
C) effect on the risk of the portfolio 
D) unsystematic risk 
A) standard deviation 
B) coefficient of variation 
C) effect on the risk of the portfolio 
D) unsystematic risk

Question 8

Maximum diversification benefit can be achieved if one were to form a portfolio of two stocks whose returns had a correlation coefficient of:

Accepted Answer

A) -1.0 
B) +1.0 
C) 0.0 
D) none of the above 
A) -1.0 
B) +1.0 
C) 0.0 
D) none of the above

Question 9

The Capital Asset Pricing Model (CAPM) states that the expected return on an asset depends upon its level of:

Accepted Answer

A) 	systematic risk 
B) 	unsystematic risk 
C) 	all of the above 
D)  	none of the above 
A) 	systematic risk 
B) 	unsystematic risk 
C) 	all of the above 
D)  	none of the above

Question 10

The market portfolio would have a beta of:

Accepted Answer

A) 0 
B) 1 
C) .-1 
D) 0.8 
A) 0 
B) 1 
C) .-1 
D) 0.8

Question 11

The greatest level of risk reduction through diversification can be achieved when combining two securities whose returns are perfectly negatively correlated.

Accepted Answer

A) True 
 B)False

Question 12

The benefits of diversification are greatest when asset returns have:

Accepted Answer

A) low positive covariances 
B) positive correlations 
C) zero correlations 
D) negative correlations 
A) low positive covariances 
B) positive correlations 
C) zero correlations 
D) negative correlations

Question 13

During the onset between 2007 and 2008, the returns on stocks and treasury bonds

Accepted Answer

A) converged 
B) diverged 
C) were about the same 
D) were unrelated 
E) none of the above 
A) converged 
B) diverged 
C) were about the same 
D) were unrelated 
E) none of the above

Question 14

Assume the probability of a pessimistic, most likely and optimistic state of nature is .25, .55 and .20, and the returns associated with those states of nature are 5%, 10%, and 13% for asset Y.Based on this information, the expected return, standard deviation, and coefficient of variation for asset Y are: Same as 77 with "none of the above" answer….ditto for 80, 82, 84, 85

Accepted Answer

A) 10.50%, 2.96% and 0.395 respectively 
B) 10.35%, 2.86% and 0.345 respectively 
C) 9.55%, 2.76% and 0.315 respectively 
D) 9.15%, 2.66% and 0.295 respectively 
E) none of the above 
A) 10.50%, 2.96% and 0.395 respectively 
B) 10.35%, 2.86% and 0.345 respectively 
C) 9.55%, 2.76% and 0.315 respectively 
D) 9.15%, 2.66% and 0.295 respectively 
E) none of the above

Question 15

In an efficient market, investors cannot consistently earn above average profits after taking risk differences into account.

Accepted Answer

A) True 
 B)False

Question 16

Asset A has a coefficient of variation of 1.2 and asset B has a coefficient of variation of 1.0.Based on this information, an individual would choose asset ____ if he or she wishes to maximize return for a given level of risk.

Accepted Answer

A) A 
B) B 
C) either A or B 
D) none of the above 
A) A 
B) B 
C) either A or B 
D) none of the above

Question 17

The return on a portfolio is simply equal to the weighted average return of the securities that comprise it.

Accepted Answer

A) True 
 B)False

Question 18

Assume the probability of a pessimistic, most likely and optimistic state of nature is .25, .55 and .20, and the returns associated with those states of nature are 5%, 10%, and 13% for asset Y.Based on this information, the expected return, standard deviation, and coefficient of variation for asset Y are:

Accepted Answer

A) 10.50%, 2.96% and 0.395 respectively 
B) 10.35%, 2.86% and 0.345 respectively 
C) 9.355%, 2.867.63% and 0.816315 respectively 
D) 9.35%, 2.76% and 0.295 respectively 
E) none of the above 
A) 10.50%, 2.96% and 0.395 respectively 
B) 10.35%, 2.86% and 0.345 respectively 
C) 9.355%, 2.867.63% and 0.816315 respectively 
D) 9.35%, 2.76% and 0.295 respectively 
E) none of the above

Question 19

Most nondiversifiable risk can be eliminated by creating a portfolio of around 30 stocks.

Accepted Answer

A) True 
 B)False

Question 20

A (n) ________ portfolio maximizes return for a given level of risk, or minimizes risk for a given level of return.

Accepted Answer

A) efficient 
B) profit maximizing 
C) idiosyncratic 
D) diverse 
E) none of the above 
A) efficient 
B) profit maximizing 
C) idiosyncratic 
D) diverse 
E) none of the above

A weak-form efficient market is one in which prices reflect all public knowledge, including past and current information.

The effect on revenues and expenses from variations in the value of the U.S.dollar in terms of other currencies is called:

An aggressive (that is, higher risk) portfolio would have a beta of:

If Stock A has a higher standard deviation than Stock B, it will also have a greater coefficient of variation.

Research on the weak-form efficient market suggests that:

If standard deviation is used to measure the risk of stocks, one problem that arises is the inability to tell which stock is riskier by looking at the standard deviation alone.

Because of portfolio effect, the most significant factor related to the risk of any investment is its:

Maximum diversification benefit can be achieved if one were to form a portfolio of two stocks whose returns had a correlation coefficient of:

The Capital Asset Pricing Model (CAPM) states that the expected return on an asset depends upon its level of:

The market portfolio would have a beta of:

The greatest level of risk reduction through diversification can be achieved when combining two securities whose returns are perfectly negatively correlated.

The benefits of diversification are greatest when asset returns have:

During the onset between 2007 and 2008, the returns on stocks and treasury bonds

In an efficient market, investors cannot consistently earn above average profits after taking risk differences into account.

Asset A has a coefficient of variation of 1.2 and asset B has a coefficient of variation of 1.0.Based on this information, an individual would choose asset ____ if he or she wishes to maximize return for a given level of risk.

The return on a portfolio is simply equal to the weighted average return of the securities that comprise it.

Most nondiversifiable risk can be eliminated by creating a portfolio of around 30 stocks.

A (n) ________ portfolio maximizes return for a given level of risk, or minimizes risk for a given level of return.

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

Exam 12: Financial Return and Risk Concepts

A weak-form efficient market is one in which prices reflect all public knowledge, including past and current information.

The effect on revenues and expenses from variations in the value of the U.S.dollar in terms of other currencies is called:

An aggressive (that is, higher risk) portfolio would have a beta of:

If Stock A has a higher standard deviation than Stock B, it will also have a greater coefficient of variation.

Research on the weak-form efficient market suggests that:

If standard deviation is used to measure the risk of stocks, one problem that arises is the inability to tell which stock is riskier by looking at the standard deviation alone.

Because of portfolio effect, the most significant factor related to the risk of any investment is its:

Maximum diversification benefit can be achieved if one were to form a portfolio of two stocks whose returns had a correlation coefficient of:

The Capital Asset Pricing Model (CAPM) states that the expected return on an asset depends upon its level of:

The market portfolio would have a beta of:

The greatest level of risk reduction through diversification can be achieved when combining two securities whose returns are perfectly negatively correlated.

The benefits of diversification are greatest when asset returns have:

During the onset between 2007 and 2008, the returns on stocks and treasury bonds

In an efficient market, investors cannot consistently earn above average profits after taking risk differences into account.

Asset A has a coefficient of variation of 1.2 and asset B has a coefficient of variation of 1.0.Based on this information, an individual would choose asset ____ if he or she wishes to maximize return for a given level of risk.

The return on a portfolio is simply equal to the weighted average return of the securities that comprise it.

Most nondiversifiable risk can be eliminated by creating a portfolio of around 30 stocks.

A (n) ________ portfolio maximizes return for a given level of risk, or minimizes risk for a given level of return.

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