Question 1

Two assets whose returns move in the opposite directions and have a correlation coefficient of -1 are both either risk-free assets or low-risk assets.

Accepted Answer

A) True 
 B)False

Question 2

The ________ is a measure of relative dispersion used in comparing the risk of assets with differing expected returns.

Accepted Answer

A)  coefficient of variation 
B)  chi square 
C)  mean 
D)  standard deviation 
A)  coefficient of variation 
B)  chi square 
C)  mean 
D)  standard deviation

Question 3

A beta coefficient of +1 represents an asset that

Accepted Answer

A)  is more responsive than the market portfolio. 
B)  has the same response as the market portfolio. 
C)  is less responsive than the market portfolio. 
D)  is unaffected by market movement. 
A)  is more responsive than the market portfolio. 
B)  has the same response as the market portfolio. 
C)  is less responsive than the market portfolio. 
D)  is unaffected by market movement.

Question 4

Foreign exchange risk is the risk that arises from the danger that a host government might take actions that are harmful to foreign investors or from the possibility that political turmoil in a country might endanger investment made in that country by foreign nationals.

Accepted Answer

A) True 
 B)False

Question 5

An example of an external factor that affects a corporation's risk or beta, and hence required rate of return would be ________ by the company.

Accepted Answer

A)  a change in the financing mix used 
B)  toxic spills 
C)  a change in the asset mix 
D)  a change in top management. 
A)  a change in the financing mix used 
B)  toxic spills 
C)  a change in the asset mix 
D)  a change in top management.

Question 6

Table 8.3
Consider the following two securities X and Y.  
-Which asset (X or Y) in Table 8.3 has the least total risk? Which has the least systematic risk?

Accepted Answer

A)  X; X 
B)  X; Y 
C)  Y; X 
D)  Y; Y 
A)  X; X 
B)  X; Y 
C)  Y; X 
D)  Y; Y

Question 7

Table 8.2
You are going to invest $20,000 in a portfolio consisting of assets X, Y, and Z, as follows:  
-Nico wants to invest all of his money in just two assets: the risk free asset and the market portfolio. What is Nico's portfolio beta if he invests a quarter of his money in the market portfolio and the rest in the risk free asset?

Accepted Answer

A)  0.00 
B)  0.25 
C)  0.75 
D)  1.00 
A)  0.00 
B)  0.25 
C)  0.75 
D)  1.00

Question 8

Table 8.2
You are going to invest $20,000 in a portfolio consisting of assets X, Y, and Z, as follows:  
-What is Nico's portfolio beta if he invests an equal amount in asset X with a beta of 0.60, asset Y with a beta of 1.60, the risk-free asset, and the market portfolio?

Accepted Answer

A)  1.20 
B)  1.00 
C)  0.80 
D)  0.60 
A)  1.20 
B)  1.00 
C)  0.80 
D)  0.60

Question 9

The goal of an efficient portfolio is to

Accepted Answer

A)  maximize risk for a given level of return. 
B)  maximize risk in order to maximize profit. 
C)  minimize profit in order to minimize risk. 
D)  minimize risk for a given level of return. 
A)  maximize risk for a given level of return. 
B)  maximize risk in order to maximize profit. 
C)  minimize profit in order to minimize risk. 
D)  minimize risk for a given level of return.

Question 10

The College Copy Shop is in process of purchasing a high-tech copier. In their search, they have gathered the following information about two possible copiers A and B.     (a) Compute expected rate of return for each copier.
(b) Compute variance and standard deviation of rate of return for each copier.
(c) Which copier should they purchase?

Accepted Answer

a and b. @#IMG-DLM& Expected value = 16.9% Expecte

Question 11

The inclusion of assets from countries that are less sensitive to the U.S. business cycle reduces the portfolio's responsiveness to market movement and to foreign currency fluctuation.

Accepted Answer

A) True 
 B)False

Question 12

Diversified investors should be concerned solely with nondiversifiable risk because it can create a portfolio of assets that will eliminate all, or virtually all, diversifiable risk.

Accepted Answer

A) True 
 B)False

Question 13

Combining two negatively correlated assets to reduce risk is known as

Accepted Answer

A)  diversification. 
B)  valuation. 
C)  liquidation. 
D)  risk aversion. 
A)  diversification. 
B)  valuation. 
C)  liquidation. 
D)  risk aversion.

Question 14

In the capital asset pricing model, the beta coefficient is a measure of ________ risk and an index of the degree of movement of an asset's return in response to a change in ________.

Accepted Answer

A)  diversifiable; the prime rate 
B)  nondiversifiable; the Treasury bill rate 
C)  diversifiable; the bond index rate 
D)  nondiversifiable; the market return 
A)  diversifiable; the prime rate 
B)  nondiversifiable; the Treasury bill rate 
C)  diversifiable; the bond index rate 
D)  nondiversifiable; the market return

Question 15

Given the following expected returns and standard deviations of assets B, M, Q, and D, which asset should the prudent financial manager select?

Accepted Answer

A)  Asset B 
B)  Asset M 
C)  Asset Q 
D)  Asset D 
A)  Asset B 
B)  Asset M 
C)  Asset Q 
D)  Asset D

Question 16

Table 8.2
You are going to invest $20,000 in a portfolio consisting of assets X, Y, and Z, as follows:  
-What is the expected market return if the expected return on asset X is 20 percent, its beta is 1.5, and the risk free rate is 5 percent?

Accepted Answer

A)  5.0% 
B)  7.5% 
C)  15.0% 
D)  22.5% 
A)  5.0% 
B)  7.5% 
C)  15.0% 
D)  22.5%

Question 17

For the risk-seeking manager, no change in return would be required for an increase in risk.

Accepted Answer

A) True 
 B)False

Question 18

Dr. Dan is considering investment in a project with beta coefficient of 1.75. What would you recommend him to do if this investment has an 11.5 percent rate of return, risk-free rate is 5.5 percent, and the rate of return on the market portfolio of assets is 8.5 percent?

Accepted Answer

r = R_F + b(r_m - R_F) = 0.055 + 1.75(0.085 -

Question 19

The slope of the SML reflects the degree of risk aversion; the steeper its slope, the greater the degree of risk aversion.

Accepted Answer

A) True 
 B)False

Question 20

Given the following information about the two assets A and B, determine which asset is preferred.

Accepted Answer

Asset A is preferred

Two assets whose returns move in the opposite directions and have a correlation coefficient of -1 are both either risk-free assets or low-risk assets.

The ________ is a measure of relative dispersion used in comparing the risk of assets with differing expected returns.

A beta coefficient of +1 represents an asset that

Foreign exchange risk is the risk that arises from the danger that a host government might take actions that are harmful to foreign investors or from the possibility that political turmoil in a country might endanger investment made in that country by foreign nationals.

An example of an external factor that affects a corporation's risk or beta, and hence required rate of return would be ________ by the company.

Table 8.3 Consider the following two securities X and Y. -Which asset (X or Y) in Table 8.3 has the least total risk? Which has the least systematic risk?

Table 8.2 You are going to invest $20,000 in a portfolio consisting of assets X, Y, and Z, as follows: -What is Nico's portfolio beta if he invests an equal amount in asset X with a beta of 0.60, asset Y with a beta of 1.60, the risk-free asset, and the market portfolio?

The goal of an efficient portfolio is to

The inclusion of assets from countries that are less sensitive to the U.S. business cycle reduces the portfolio's responsiveness to market movement and to foreign currency fluctuation.

Diversified investors should be concerned solely with nondiversifiable risk because it can create a portfolio of assets that will eliminate all, or virtually all, diversifiable risk.

Combining two negatively correlated assets to reduce risk is known as

In the capital asset pricing model, the beta coefficient is a measure of risk and an index of the degree of movement of an asset's return in response to a change in .

Given the following expected returns and standard deviations of assets B, M, Q, and D, which asset should the prudent financial manager select?

Table 8.2 You are going to invest $20,000 in a portfolio consisting of assets X, Y, and Z, as follows: -What is the expected market return if the expected return on asset X is 20 percent, its beta is 1.5, and the risk free rate is 5 percent?

For the risk-seeking manager, no change in return would be required for an increase in risk.

Dr. Dan is considering investment in a project with beta coefficient of 1.75. What would you recommend him to do if this investment has an 11.5 percent rate of return, risk-free rate is 5.5 percent, and the rate of return on the market portfolio of assets is 8.5 percent?

The slope of the SML reflects the degree of risk aversion; the steeper its slope, the greater the degree of risk aversion.

Given the following information about the two assets A and B, determine which asset is preferred.

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Cash Flow and Financial Planning

Time Value of Money

Interest Rates and Bond Valuation

Stock Valuation

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Current Liabilities Management

Hybrid and Derivative Securities

Mergers, Lbos, Divestitures, and Business Failure

International Managerial Finance

Filters

Exam 8: Risk and Return

Two assets whose returns move in the opposite directions and have a correlation coefficient of -1 are both either risk-free assets or low-risk assets.

The ________ is a measure of relative dispersion used in comparing the risk of assets with differing expected returns.

A beta coefficient of +1 represents an asset that

Foreign exchange risk is the risk that arises from the danger that a host government might take actions that are harmful to foreign investors or from the possibility that political turmoil in a country might endanger investment made in that country by foreign nationals.

An example of an external factor that affects a corporation's risk or beta, and hence required rate of return would be ________ by the company.

Table 8.3 Consider the following two securities X and Y. -Which asset (X or Y) in Table 8.3 has the least total risk? Which has the least systematic risk?

Table 8.2 You are going to invest $20,000 in a portfolio consisting of assets X, Y, and Z, as follows: -What is Nico's portfolio beta if he invests an equal amount in asset X with a beta of 0.60, asset Y with a beta of 1.60, the risk-free asset, and the market portfolio?

The goal of an efficient portfolio is to

The inclusion of assets from countries that are less sensitive to the U.S. business cycle reduces the portfolio's responsiveness to market movement and to foreign currency fluctuation.

Diversified investors should be concerned solely with nondiversifiable risk because it can create a portfolio of assets that will eliminate all, or virtually all, diversifiable risk.

Combining two negatively correlated assets to reduce risk is known as

In the capital asset pricing model, the beta coefficient is a measure of ________ risk and an index of the degree of movement of an asset's return in response to a change in ________.

Given the following expected returns and standard deviations of assets B, M, Q, and D, which asset should the prudent financial manager select?

Table 8.2 You are going to invest $20,000 in a portfolio consisting of assets X, Y, and Z, as follows: -What is the expected market return if the expected return on asset X is 20 percent, its beta is 1.5, and the risk free rate is 5 percent?

For the risk-seeking manager, no change in return would be required for an increase in risk.

Dr. Dan is considering investment in a project with beta coefficient of 1.75. What would you recommend him to do if this investment has an 11.5 percent rate of return, risk-free rate is 5.5 percent, and the rate of return on the market portfolio of assets is 8.5 percent?

The slope of the SML reflects the degree of risk aversion; the steeper its slope, the greater the degree of risk aversion.

Given the following information about the two assets A and B, determine which asset is preferred.

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Cash Flow and Financial Planning

Time Value of Money

Interest Rates and Bond Valuation

Stock Valuation

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Current Liabilities Management

Hybrid and Derivative Securities

Mergers, Lbos, Divestitures, and Business Failure

International Managerial Finance

Filters

In the capital asset pricing model, the beta coefficient is a measure of risk and an index of the degree of movement of an asset's return in response to a change in .