Question 1

The higher a stock's beta,the

Accepted Answer

A) higher its expected return. 
B) higher its market risk. 
C) lower its random risk. 
D) lower its required return. 
A) higher its expected return. 
B) higher its market risk. 
C) lower its random risk. 
D) lower its required return.

Question 2

Given the data below,which is the correct ranking of securities (best to worst)in terms of their relative appeal?
Security A B C
Expected return 8% 20% 40%
Required return 14% 8% 30%

Accepted Answer

A) A,C,B 
B) B,C,A 
C) C,B,A 
D) C,A,B 
A) A,C,B 
B) B,C,A 
C) C,B,A 
D) C,A,B

Question 3

A market risk premium refers to difference in yields between the risk-free rate and the overall market.

Accepted Answer

A) True 
 B)False

Question 4

Which alternative is not true with respect to market timing?

Accepted Answer

A) It tries to increase return by trading in and out of the market over time. 
B) It can increase portfolio risk. 
C) Evidence shows that amateurs do it poorly,while professionals do it very well. 
D) All of the above are true. 
A) It tries to increase return by trading in and out of the market over time. 
B) It can increase portfolio risk. 
C) Evidence shows that amateurs do it poorly,while professionals do it very well. 
D) All of the above are true.

Question 5

A possible advantage of dollar cost averaging is that it eliminates investors' emotions.

Accepted Answer

A) True 
 B)False

Question 6

Assume that you are considering investing in Xerox common stock.You have found that its beta is +1.2 and you think a market risk premium should be 8%.If you could earn 12% on risk-free Treasury securities,Xerox has a required return of ________%.

Accepted Answer

A) 24.0 
B) 14.4 
C) 21.6 
D) 22.4 
A) 24.0 
B) 14.4 
C) 21.6 
D) 22.4

Question 7

A decrease in the market risk premium will lead to an increase in securities' required returns.

Accepted Answer

A) True 
 B)False

Question 8

Comparing a stock's required return (RR)to its expected return (ER),we can say

Accepted Answer

A) the stock is a good buy when they are equal. 
B) that each represents a different concept and,so,they may have quite different values. 
C) they are simply different perspectives on the same concept and,so,they should have the same value. 
D) the stock is a good buy only when RR is greater than ER. 
A) the stock is a good buy when they are equal. 
B) that each represents a different concept and,so,they may have quite different values. 
C) they are simply different perspectives on the same concept and,so,they should have the same value. 
D) the stock is a good buy only when RR is greater than ER.

Question 9

Which item below is not a valid reason for selling a security?

Accepted Answer

A) Its price has increased to such an extent that it is now overvalued. 
B) Its alpha has increased. 
C) The investor has an opportunity for a tax swap. 
D) The investor's objectives change. 
A) Its price has increased to such an extent that it is now overvalued. 
B) Its alpha has increased. 
C) The investor has an opportunity for a tax swap. 
D) The investor's objectives change.

Question 10

Investment risk can be broken down into random risk and market risk.By diversifying,an investor can eliminate

Accepted Answer

A) only random risk. 
B) only market risk. 
C) both random risk and market risk. 
D) a portion,but not all,of each. 
A) only random risk. 
B) only market risk. 
C) both random risk and market risk. 
D) a portion,but not all,of each.

Question 11

Statistical correlation studies of returns of the three key financial assets indicates that

Accepted Answer

A) there is strong positive correlation among their returns. 
B) it makes sense to hold Treasury bonds and Treasury bills together,but not stocks. 
C) holding a portfolio of all three assets increased return and decreased risk. 
D) there is rather poor correlation among their returns. 
A) there is strong positive correlation among their returns. 
B) it makes sense to hold Treasury bonds and Treasury bills together,but not stocks. 
C) holding a portfolio of all three assets increased return and decreased risk. 
D) there is rather poor correlation among their returns.

Question 12

One perspective on risk asserts that the longer an investment is held,the

Accepted Answer

A) greater its risk because there is less chance of earning the long-run average return. 
B) less its risk because there is a greater chance of earning the long-run average return. 
C) greater the risk because the long-run average return will be lower. 
D) less the risk because the long-run average return will be higher. 
A) greater its risk because there is less chance of earning the long-run average return. 
B) less its risk because there is a greater chance of earning the long-run average return. 
C) greater the risk because the long-run average return will be lower. 
D) less the risk because the long-run average return will be higher.

Question 13

A risk premium is the difference between

Accepted Answer

A) the return on an investment and its risk. 
B) the return on an investment and the return on Treasury bills. 
C) the rate of inflation and the return on Treasury bills. 
D) the intrinsic value of an investment and its market price. 
A) the return on an investment and its risk. 
B) the return on an investment and the return on Treasury bills. 
C) the rate of inflation and the return on Treasury bills. 
D) the intrinsic value of an investment and its market price.

Question 14

Given the longer an asset is held,the greater the potential range of returns.

Accepted Answer

A) True 
 B)False

Question 15

Generally,a portfolio of 20 securities is adequate to eliminate most random risk.

Accepted Answer

A) True 
 B)False

Question 16

The market risk premium is the difference between the market return and

Accepted Answer

A) the return on corporate bonds. 
B) the return on Treasury bonds. 
C) the inflation rate. 
D) the return on Treasury bills. 
A) the return on corporate bonds. 
B) the return on Treasury bonds. 
C) the inflation rate. 
D) the return on Treasury bills.

Question 17

Which item below is not a guideline for effective diversification? Diversify

Accepted Answer

A) among tangibles and intangibles. 
B) among assets and liabilities. 
C) on a global basis. 
D) within asset groups. 
A) among tangibles and intangibles. 
B) among assets and liabilities. 
C) on a global basis. 
D) within asset groups.

Question 18

Generally,a portfolio of 20 securities is adequate to eliminate most market risk.

Accepted Answer

A) True 
 B)False

Question 19

Market-timing strategies try to exploit the investment cycle.

Accepted Answer

A) True 
 B)False

Question 20

A good investment is one with a negative alpha value.

Accepted Answer

A) True 
 B)False

The higher a stock's beta,the

Given the data below,which is the correct ranking of securities (best to worst)in terms of their relative appeal? Security A B C Expected return 8% 20% 40% Required return 14% 8% 30%

A market risk premium refers to difference in yields between the risk-free rate and the overall market.

Which alternative is not true with respect to market timing?

A possible advantage of dollar cost averaging is that it eliminates investors' emotions.

Assume that you are considering investing in Xerox common stock.You have found that its beta is +1.2 and you think a market risk premium should be 8%.If you could earn 12% on risk-free Treasury securities,Xerox has a required return of ________%.

A decrease in the market risk premium will lead to an increase in securities' required returns.

Comparing a stock's required return (RR)to its expected return (ER),we can say

Which item below is not a valid reason for selling a security?

Investment risk can be broken down into random risk and market risk.By diversifying,an investor can eliminate

Statistical correlation studies of returns of the three key financial assets indicates that

One perspective on risk asserts that the longer an investment is held,the

A risk premium is the difference between

Given the longer an asset is held,the greater the potential range of returns.

Generally,a portfolio of 20 securities is adequate to eliminate most random risk.

The market risk premium is the difference between the market return and

Which item below is not a guideline for effective diversification? Diversify

Generally,a portfolio of 20 securities is adequate to eliminate most market risk.

Market-timing strategies try to exploit the investment cycle.

A good investment is one with a negative alpha value.

Financial Planning: Why Its Important to You

The Time Value of Money: All Dollars Are Not Created Equal

Financial Statement and Budgets: Where Are You Now and Where Are You Going

Taxes: the Governments Share of Your Rewards

Liquidity Management: Managing Current Assets and Current Liabilities

Short-Term Credit Management: Consumer Credit

Consumer Durables: the Personal Auto

Housing: the Cost of Shelter

Financial Markets and Instruments: Learning the Investment Environment

Stocks and Bonds: Your Most Common Investments

Mutual Fundsother Pooling Arrangements: Simplifying, Maybe Improving Investment Performance

Property and Liability Insurance: Protecting Your Lifestyle Assets

Health Care and Disability Insurance: Protecting Your Earning Capacity

Life Insurance and Estate Planning: Protecting Your Dependents

Retirement Planning: Planning for Your Long-Term Needs

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Exam 10: Investment Basics: Understanding Risk and Return

The higher a stock's beta,the

Given the data below,which is the correct ranking of securities (best to worst)in terms of their relative appeal? Security A B C Expected return 8% 20% 40% Required return 14% 8% 30%

A market risk premium refers to difference in yields between the risk-free rate and the overall market.

Which alternative is not true with respect to market timing?

A possible advantage of dollar cost averaging is that it eliminates investors' emotions.

Assume that you are considering investing in Xerox common stock.You have found that its beta is +1.2 and you think a market risk premium should be 8%.If you could earn 12% on risk-free Treasury securities,Xerox has a required return of ________%.

A decrease in the market risk premium will lead to an increase in securities' required returns.

Comparing a stock's required return (RR)to its expected return (ER),we can say

Which item below is not a valid reason for selling a security?

Investment risk can be broken down into random risk and market risk.By diversifying,an investor can eliminate

Statistical correlation studies of returns of the three key financial assets indicates that

One perspective on risk asserts that the longer an investment is held,the

A risk premium is the difference between

Given the longer an asset is held,the greater the potential range of returns.

Generally,a portfolio of 20 securities is adequate to eliminate most random risk.

The market risk premium is the difference between the market return and

Which item below is not a guideline for effective diversification? Diversify

Generally,a portfolio of 20 securities is adequate to eliminate most market risk.

Market-timing strategies try to exploit the investment cycle.

A good investment is one with a negative alpha value.

Financial Planning: Why Its Important to You

The Time Value of Money: All Dollars Are Not Created Equal

Financial Statement and Budgets: Where Are You Now and Where Are You Going

Taxes: the Governments Share of Your Rewards

Liquidity Management: Managing Current Assets and Current Liabilities

Short-Term Credit Management: Consumer Credit

Consumer Durables: the Personal Auto

Housing: the Cost of Shelter

Financial Markets and Instruments: Learning the Investment Environment

Stocks and Bonds: Your Most Common Investments

Mutual Fundsother Pooling Arrangements: Simplifying, Maybe Improving Investment Performance

Property and Liability Insurance: Protecting Your Lifestyle Assets

Health Care and Disability Insurance: Protecting Your Earning Capacity

Life Insurance and Estate Planning: Protecting Your Dependents

Retirement Planning: Planning for Your Long-Term Needs

Filters