Question 1

Which combination of assets is likely to be most effective in reducing portfolio risk?

Accepted Answer

A) Two stocks in the same industry,such as GM and Ford 
B) Two stocks in the same country,such as GM and IBM 
C) Two precious metals,such as gold and silver 
D) One precious metal and one stock,such as gold and GM 
A) Two stocks in the same industry,such as GM and Ford 
B) Two stocks in the same country,such as GM and IBM 
C) Two precious metals,such as gold and silver 
D) One precious metal and one stock,such as gold and GM

Question 2

Which item below is not related to risks associated with conditions of a security issuer?

Accepted Answer

A) Interest rate risk 
B) Management risk 
C) Business risk 
D) Financial risk 
A) Interest rate risk 
B) Management risk 
C) Business risk 
D) Financial risk

Question 3

You have just read the annual report of a mutual fund.It boasted of a 26% return and advertised that it had beat the market return last year by three percentage points.In doing some research you discover the fund had a beta of +1.5 and the return on risk-free Treasury securities was 15.0%.Assuming a market risk premium of 8.0% should be used to evaluate performance means that

Accepted Answer

A) the fund's performance was impressive;three percentage points is significant,given the above data. 
B) the fund's performance was good,but not impressive;it beat the market,but only by one percentage point not three. 
C) the fund's performance was no better than what you would have expected. 
D) the fund's performance was actually a percentage point less than what you would have expected. 
A) the fund's performance was impressive;three percentage points is significant,given the above data. 
B) the fund's performance was good,but not impressive;it beat the market,but only by one percentage point not three. 
C) the fund's performance was no better than what you would have expected. 
D) the fund's performance was actually a percentage point less than what you would have expected.

Question 4

Good advice is to not sell a stock simply because it is overvalued.

Accepted Answer

A) True 
 B)False

Question 5

Firm specific risk can be entirely eliminated if the returns on two firms have perfect negative correlation.

Accepted Answer

A) True 
 B)False

Question 6

Suppose the risk-free rate is 9%,the market risk premium is 8%,and a security's beta is 0.6;then,you should require a return on the security of 13.4%.

Accepted Answer

A) True 
 B)False

Question 7

The most appropriate view of investment risk is

Accepted Answer

A) the possibility of investing in fraudulent schemes. 
B) a range of possible returns the greater the range,the greater the risk. 
C) the possibility of not achieving your investment goal. 
D) the possibility of total loss. 
A) the possibility of investing in fraudulent schemes. 
B) a range of possible returns the greater the range,the greater the risk. 
C) the possibility of not achieving your investment goal. 
D) the possibility of total loss.

Question 8

Order the following investments in terms of their historic returns from highest to lowest.

Accepted Answer

A) stocks,bonds,Treasury bills 
B) Treasury bills,stocks,bonds 
C) bonds,stocks,Treasury bills 
D) bonds,Treasury bills,stocks 
A) stocks,bonds,Treasury bills 
B) Treasury bills,stocks,bonds 
C) bonds,stocks,Treasury bills 
D) bonds,Treasury bills,stocks

Question 9

An investment's required rate of return is

Accepted Answer

A) the return you expect to receive in the upcoming period. 
B) its long-run average return. 
C) the return required by government regulators. 
D) the return it must earn to reward investors for undertaking its inherent risks. 
A) the return you expect to receive in the upcoming period. 
B) its long-run average return. 
C) the return required by government regulators. 
D) the return it must earn to reward investors for undertaking its inherent risks.

Question 10

An increase in a security's random risk should lead to an increase in its beta value.

Accepted Answer

A) True 
 B)False

Question 11

Interest rate risk is closely related to inflation risk.

Accepted Answer

A) True 
 B)False

Question 12

A buy-and-hold strategy is generally riskier than a market-timing strategy.

Accepted Answer

A) True 
 B)False

Question 13

A stock's alpha value is calculated as

Accepted Answer

A) expected return minus required return. 
B) required return minus expected return. 
C) required return plus expected return. 
D) expected return divided by the stock's beta. 
A) expected return minus required return. 
B) required return minus expected return. 
C) required return plus expected return. 
D) expected return divided by the stock's beta.

Question 14

Which explanation below is most appropriate in explaining why diversification can reduce investment risk?

Accepted Answer

A) The greater the number of assets held,the greater the portfolio return. 
B) The greater the risk taken,the greater the portfolio return. 
C) Asset returns are often poorly correlated. 
D) Asset returns tend to be stable over time. 
A) The greater the number of assets held,the greater the portfolio return. 
B) The greater the risk taken,the greater the portfolio return. 
C) Asset returns are often poorly correlated. 
D) Asset returns tend to be stable over time.

Question 15

A security's beta is a measurement of its random risk.

Accepted Answer

A) True 
 B)False

Question 16

Holding foreign assets in a portfolio tends to reduce the portfolio risk.

Accepted Answer

A) True 
 B)False

Question 17

Over the period 1970 through 2006,the average annual return on Treasury bills was about 3%.

Accepted Answer

A) True 
 B)False

Question 18

A DRIP is one form of dollar cost averaging.

Accepted Answer

A) True 
 B)False

Question 19

Risk is often viewed as a range of investment returns.

Accepted Answer

A) True 
 B)False

Question 20

The iron law of risk and return means that

Accepted Answer

A) to earn higher investment returns you must undertake higher investment risk. 
B) to earn higher investment return you run the risk of filing a fraudulent tax return. 
C) most investments require your strict adherence to securities laws. 
D) as a beginning investor you run the risk of substantial investment losses. 
A) to earn higher investment returns you must undertake higher investment risk. 
B) to earn higher investment return you run the risk of filing a fraudulent tax return. 
C) most investments require your strict adherence to securities laws. 
D) as a beginning investor you run the risk of substantial investment losses.

Which combination of assets is likely to be most effective in reducing portfolio risk?

Which item below is not related to risks associated with conditions of a security issuer?

Good advice is to not sell a stock simply because it is overvalued.

Firm specific risk can be entirely eliminated if the returns on two firms have perfect negative correlation.

Suppose the risk-free rate is 9%,the market risk premium is 8%,and a security's beta is 0.6;then,you should require a return on the security of 13.4%.

The most appropriate view of investment risk is

Order the following investments in terms of their historic returns from highest to lowest.

An investment's required rate of return is

An increase in a security's random risk should lead to an increase in its beta value.

Interest rate risk is closely related to inflation risk.

A buy-and-hold strategy is generally riskier than a market-timing strategy.

A stock's alpha value is calculated as

Which explanation below is most appropriate in explaining why diversification can reduce investment risk?

A security's beta is a measurement of its random risk.

Holding foreign assets in a portfolio tends to reduce the portfolio risk.

Over the period 1970 through 2006,the average annual return on Treasury bills was about 3%.

A DRIP is one form of dollar cost averaging.

Risk is often viewed as a range of investment returns.

The iron law of risk and return means that

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

Which combination of assets is likely to be most effective in reducing portfolio risk?

Which item below is not related to risks associated with conditions of a security issuer?

Good advice is to not sell a stock simply because it is overvalued.

Firm specific risk can be entirely eliminated if the returns on two firms have perfect negative correlation.

Suppose the risk-free rate is 9%,the market risk premium is 8%,and a security's beta is 0.6;then,you should require a return on the security of 13.4%.

The most appropriate view of investment risk is

Order the following investments in terms of their historic returns from highest to lowest.

An investment's required rate of return is

An increase in a security's random risk should lead to an increase in its beta value.

Interest rate risk is closely related to inflation risk.

A buy-and-hold strategy is generally riskier than a market-timing strategy.

A stock's alpha value is calculated as

Which explanation below is most appropriate in explaining why diversification can reduce investment risk?

A security's beta is a measurement of its random risk.

Holding foreign assets in a portfolio tends to reduce the portfolio risk.

Over the period 1970 through 2006,the average annual return on Treasury bills was about 3%.

A DRIP is one form of dollar cost averaging.

Risk is often viewed as a range of investment returns.

The iron law of risk and return means that

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