Question 1

Which of these statements is true?

Accepted Answer

A) When people purchase a stock, they know exactly what their dollar and percent return are going to be. 
B) Many people purchase stocks as they find comfort in the certainty for this safe form of investing. 
C) When people purchase a stock, they know the short-term return, but not the long term return. 
D) When people purchase a stock, they do not know what their return is going to be-either short term or in the long run. 
A) When people purchase a stock, they know exactly what their dollar and percent return are going to be. 
B) Many people purchase stocks as they find comfort in the certainty for this safe form of investing. 
C) When people purchase a stock, they know the short-term return, but not the long term return. 
D) When people purchase a stock, they do not know what their return is going to be-either short term or in the long run.

Question 2

Portfolio Weights You have $45,050 to invest.You want to purchase shares of Company Air at $10.25,Company B at $15.10,and Company F at $9.05.How many shares of each company should you purchase so that your portfolio consists of 30 percent Company A,50 percent Company B,and 20 percent Company F? Report only whole stock shares.

Accepted Answer

A) Company A = 30 shares, Company B = 50 shares, Company F = 20 shares 
B) Company A = 44 shares, Company B = 30 shares, Company F = 50 shares 
C) Company A = 308 shares, Company B = 755 shares, Company F = 181 shares 
D) Company A = 1,323 shares, Company B = 1,490 shares, Company F = 993 shares 
A) Company A = 30 shares, Company B = 50 shares, Company F = 20 shares 
B) Company A = 44 shares, Company B = 30 shares, Company F = 50 shares 
C) Company A = 308 shares, Company B = 755 shares, Company F = 181 shares 
D) Company A = 1,323 shares, Company B = 1,490 shares, Company F = 993 shares

Question 3

What does diversification do to the risk and return characteristics of a portfolio?

Accepted Answer

Diversifying does little for the return

Question 4

If you own 300 shares of Alaska Air at $15.88,250 shares of Best Buy at $151.00,and 1,150 shares of Ford Motor at $3.51,what are the portfolio weights of each stock?

Accepted Answer

A) Weight of Alaska Air: 10.23 percent; Weight of Best Buy: 81.09 percent; Weight of Ford Motor: 8.67 percent 
B) Weight of Alaska Air: 6.23 percent; Weight of Best Buy: 71.09 percent; Weight of Ford Motor: 22.67 percent 
C) Weight of Alaska Air: 15.23 percent; Weight of Best Buy: 81.09 percent; Weight of Ford Motor: 3.67 percent 
D) Weight of Alaska Air: 20.23 percent; Weight of Best Buy: 76.09 percent; Weight of Ford Motor: 3.67 percent 
A) Weight of Alaska Air: 10.23 percent; Weight of Best Buy: 81.09 percent; Weight of Ford Motor: 8.67 percent 
B) Weight of Alaska Air: 6.23 percent; Weight of Best Buy: 71.09 percent; Weight of Ford Motor: 22.67 percent 
C) Weight of Alaska Air: 15.23 percent; Weight of Best Buy: 81.09 percent; Weight of Ford Motor: 3.67 percent 
D) Weight of Alaska Air: 20.23 percent; Weight of Best Buy: 76.09 percent; Weight of Ford Motor: 3.67 percent

Question 5

Which of these is the term for portfolios with the highest return possible for each risk level?

Accepted Answer

A) Efficient portfolios 
B) Modern portfolios 
C) Optimal portfolios 
D) Total portfolios 
A) Efficient portfolios 
B) Modern portfolios 
C) Optimal portfolios 
D) Total portfolios

Question 6

Identify and explain a common measure for risk-return relationship.

Accepted Answer

We commonly measure risk-return relation

Question 7

From 1950 to 2007,the average return in the stock market,as measured by the S&P 500,was 13.2 percent and a standard deviation of 17 percent.Given this information,which of the following statements is correct?

Accepted Answer

A) With an average return this high, it is unlikely that an investor will lose money in the stock market in the next year or two. 
B) With a standard deviation this high, it is likely that an investor will lose money in some years over a 25-year investment period. 
C) This investment is not very good since the standard deviation is greater than the average return. 
D) All of these statements are correct. 
A) With an average return this high, it is unlikely that an investor will lose money in the stock market in the next year or two. 
B) With a standard deviation this high, it is likely that an investor will lose money in some years over a 25-year investment period. 
C) This investment is not very good since the standard deviation is greater than the average return. 
D) All of these statements are correct.

Question 8

FedEx Corp.stock ended the previous year at $113.39 per share.It paid a $0.40 per share dividend last year.It ended last year at $126.69.If you owned 300 shares of FedEx,what was your dollar return and percent return?

Accepted Answer

A) $3,990; 11.73 percent 
B) $4,110; 12.08 percent 
C) $4,250; 12.29 percent 
D) $2,009; 9.13 percent 
A) $3,990; 11.73 percent 
B) $4,110; 12.08 percent 
C) $4,250; 12.29 percent 
D) $2,009; 9.13 percent

Question 9

Portfolio Return At the beginning of the month,you owned $6,000 of Company G,$8,000 of Company S,and $1,000 of Company N.The monthly returns for Company G,Company S,and Company N were 7.25 percent,-1.50 percent,and -0.23 percent.What is your portfolio return?

Accepted Answer

A) 1.84 percent 
B) 2.08 percent 
C) 3.71 percent 
D) 5.52 percent 
A) 1.84 percent 
B) 2.08 percent 
C) 3.71 percent 
D) 5.52 percent

Question 10

An investor owns $8,000 of Adobe Systems stock,$5,000 of Dow Chemical,and $3,000 of Office Depot.What are the portfolio weights of each stock?

Accepted Answer

A) Adobe: 0.5; Dow Chemical: 0.31; Office Depot: 0.19 
B) Adobe: 0.5; Dow Chemical: 0.32; Office Depot: 0.18 
C) Adobe: 0.5; Dow Chemical: 0.13; Office Depot: 0.27 
D) Adobe: 0.5; Dow Chemical: 0.19; Office Depot: 0.31 
A) Adobe: 0.5; Dow Chemical: 0.31; Office Depot: 0.19 
B) Adobe: 0.5; Dow Chemical: 0.32; Office Depot: 0.18 
C) Adobe: 0.5; Dow Chemical: 0.13; Office Depot: 0.27 
D) Adobe: 0.5; Dow Chemical: 0.19; Office Depot: 0.31

Question 11

Risk,Return,and Their Relationship Consider the following stocks' annual average return,standard deviation,and coefficient of variation.Which stock appears better? Why?

Accepted Answer

Company M has experienced a higher avera

Question 12

Which of the following statements is correct?

Accepted Answer

A) For a few firms in completely different industries, it is possible to have a correlation that approaches -2.0. 
B) A correlation of -1.0 means that the two firms are uncorrelated or that they have no relationship. 
C) Most common stocks have low correlation with each other since they operate in different industries. 
D) None of these statements is correct. 
A) For a few firms in completely different industries, it is possible to have a correlation that approaches -2.0. 
B) A correlation of -1.0 means that the two firms are uncorrelated or that they have no relationship. 
C) Most common stocks have low correlation with each other since they operate in different industries. 
D) None of these statements is correct.

Question 13

Modern portfolio theory is:

Accepted Answer

A) a concept and procedure for combining securities into a portfolio to minimize risk. 
B) a concept and procedure for combining securities into a portfolio to maximize return. 
C) a concept and procedure for combining securities into a portfolio to maximize volatility. 
D) a concept and procedure for combining securities into a portfolio to maximize dollar return. 
A) a concept and procedure for combining securities into a portfolio to minimize risk. 
B) a concept and procedure for combining securities into a portfolio to maximize return. 
C) a concept and procedure for combining securities into a portfolio to maximize volatility. 
D) a concept and procedure for combining securities into a portfolio to maximize dollar return.

Question 14

A stock has an expected return of 15 percent and a standard deviation of 20 percent.Long-term Treasury bonds have an expected return of 9 percent and a standard deviation of 11 percent.Given this data,which of the following statements is correct?

Accepted Answer

A) The two assets have the same coefficient of variation. 
B) The stock investment has a better risk-return trade-off. 
C) The bond investment has a better risk-return trade-off. 
D) Both investments have the same diversifiable risk. 
A) The two assets have the same coefficient of variation. 
B) The stock investment has a better risk-return trade-off. 
C) The bond investment has a better risk-return trade-off. 
D) Both investments have the same diversifiable risk.

Question 15

Which of the following is correct?

Accepted Answer

A) Investors can reduce the risk in their portfolio by investing in international stocks since they tend to have low correlation with our own stock market. 
B) Combining both stocks and bonds will likely reduce risk in a portfolio because the two assets have low correlation. 
C) Your optimal portfolio is an efficient portfolio with your desired risk level. 
D) All of these statements are correct. 
A) Investors can reduce the risk in their portfolio by investing in international stocks since they tend to have low correlation with our own stock market. 
B) Combining both stocks and bonds will likely reduce risk in a portfolio because the two assets have low correlation. 
C) Your optimal portfolio is an efficient portfolio with your desired risk level. 
D) All of these statements are correct.

Question 16

How do we define risk in this chapter and how do we measure it?

Accepted Answer

Risk is defined as the volatility of an

Question 17

Which of the following statements is correct with regards to diversification?

Accepted Answer

A) Diversifying reduces the return of the portfolio. 
B) Diversifying reduces the market risk of the portfolio. 
C) Diversifying reduces the dollar return of the portfolio. 
D) None of these statements is correct. 
A) Diversifying reduces the return of the portfolio. 
B) Diversifying reduces the market risk of the portfolio. 
C) Diversifying reduces the dollar return of the portfolio. 
D) None of these statements is correct.

Question 18

Total Risk Rank the following three stocks by their level of total risk,highest to lowest.Rail Haul has an average return of 8 percent and standard deviation of 10 percent.The average return and standard deviation of Idol Staff are 10 percent and 20 percent; and of Poker-R-Us are 6 percent and 15 percent.

Accepted Answer

A) Rail Haul, Poker-R-Us, Idol Staff 
B) Idol Staff, Rail Haul, Poker-R-Us 
C) Poker-R-Us, Idol Staff, Rail Haul 
D) Idol Staff, Poker-R-Us, Rail Haul 
A) Rail Haul, Poker-R-Us, Idol Staff 
B) Idol Staff, Rail Haul, Poker-R-Us 
C) Poker-R-Us, Idol Staff, Rail Haul 
D) Idol Staff, Poker-R-Us, Rail Haul

Question 19

Describe the diversification potential of two assets with a -0.7 correlation.What is the potential if the correlation is +0.7?

Accepted Answer

The diversification potential is very go

Question 20

Which of the following statements is correct regarding total risk?

Accepted Answer

A) The coefficient of variation is a measure of the firm's total risk. 
B) All firms have the same amount of total risk because they are all exposed to the same market risk. 
C) Conglomerates will have less total risk than a firm that has one line of business. 
D) None of these statements are correct. 
A) The coefficient of variation is a measure of the firm's total risk. 
B) All firms have the same amount of total risk because they are all exposed to the same market risk. 
C) Conglomerates will have less total risk than a firm that has one line of business. 
D) None of these statements are correct.

Which of these statements is true?

What does diversification do to the risk and return characteristics of a portfolio?

If you own 300 shares of Alaska Air at $15.88,250 shares of Best Buy at $151.00,and 1,150 shares of Ford Motor at $3.51,what are the portfolio weights of each stock?

Which of these is the term for portfolios with the highest return possible for each risk level?

Identify and explain a common measure for risk-return relationship.

From 1950 to 2007,the average return in the stock market,as measured by the S&P 500,was 13.2 percent and a standard deviation of 17 percent.Given this information,which of the following statements is correct?

FedEx Corp.stock ended the previous year at $113.39 per share.It paid a $0.40 per share dividend last year.It ended last year at $126.69.If you owned 300 shares of FedEx,what was your dollar return and percent return?

Portfolio Return At the beginning of the month,you owned $6,000 of Company G,$8,000 of Company S,and $1,000 of Company N.The monthly returns for Company G,Company S,and Company N were 7.25 percent,-1.50 percent,and -0.23 percent.What is your portfolio return?

An investor owns $8,000 of Adobe Systems stock,$5,000 of Dow Chemical,and $3,000 of Office Depot.What are the portfolio weights of each stock?

Risk,Return,and Their Relationship Consider the following stocks' annual average return,standard deviation,and coefficient of variation.Which stock appears better? Why?

Which of the following statements is correct?

Modern portfolio theory is:

A stock has an expected return of 15 percent and a standard deviation of 20 percent.Long-term Treasury bonds have an expected return of 9 percent and a standard deviation of 11 percent.Given this data,which of the following statements is correct?

Which of the following is correct?

How do we define risk in this chapter and how do we measure it?

Which of the following statements is correct with regards to diversification?

Describe the diversification potential of two assets with a -0.7 correlation.What is the potential if the correlation is +0.7?

Which of the following statements is correct regarding total risk?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money

Time Value of Money

Valuing Bonds

Valuing Stockspart

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, equity, and Capital Structure

Sharing Firm Wealth: Dividends, share Repurchases and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 9: Characterizing Risk and Return

Which of these statements is true?

What does diversification do to the risk and return characteristics of a portfolio?

If you own 300 shares of Alaska Air at $15.88,250 shares of Best Buy at $151.00,and 1,150 shares of Ford Motor at $3.51,what are the portfolio weights of each stock?

Which of these is the term for portfolios with the highest return possible for each risk level?

Identify and explain a common measure for risk-return relationship.

From 1950 to 2007,the average return in the stock market,as measured by the S&P 500,was 13.2 percent and a standard deviation of 17 percent.Given this information,which of the following statements is correct?

FedEx Corp.stock ended the previous year at $113.39 per share.It paid a $0.40 per share dividend last year.It ended last year at $126.69.If you owned 300 shares of FedEx,what was your dollar return and percent return?

Portfolio Return At the beginning of the month,you owned $6,000 of Company G,$8,000 of Company S,and $1,000 of Company N.The monthly returns for Company G,Company S,and Company N were 7.25 percent,-1.50 percent,and -0.23 percent.What is your portfolio return?

An investor owns $8,000 of Adobe Systems stock,$5,000 of Dow Chemical,and $3,000 of Office Depot.What are the portfolio weights of each stock?

Risk,Return,and Their Relationship Consider the following stocks' annual average return,standard deviation,and coefficient of variation.Which stock appears better? Why?

Which of the following statements is correct?

Modern portfolio theory is:

A stock has an expected return of 15 percent and a standard deviation of 20 percent.Long-term Treasury bonds have an expected return of 9 percent and a standard deviation of 11 percent.Given this data,which of the following statements is correct?

Which of the following is correct?

How do we define risk in this chapter and how do we measure it?

Which of the following statements is correct with regards to diversification?

Describe the diversification potential of two assets with a -0.7 correlation.What is the potential if the correlation is +0.7?

Which of the following statements is correct regarding total risk?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money

Time Value of Money

Valuing Bonds

Valuing Stockspart

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, equity, and Capital Structure

Sharing Firm Wealth: Dividends, share Repurchases and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters