Question 1

Combining negatively correlated assets having the same expected return results in a portfolio with ________ level of expected return and ________ level of risk.

Accepted Answer

A)  a higher; a lower 
B)  the same; a higher 
C)  the same; a lower 
D)  a lower; a higher 
A)  a higher; a lower 
B)  the same; a higher 
C)  the same; a lower 
D)  a lower; a higher

Question 2

Champion Breweries must choose between two asset purchases. The annual rate of return and related probabilities given below summarize the firm's analysis.   For each asset, compute
(a) the expected rate of return.
(b) the standard deviation of the expected return.
(c) the coefficient of variation of the return.
(d) Which asset should Champion select?

Accepted Answer

(a) @#IMG-DLM& Expected Return = 15% Expected Retu

Question 3

A normal probability distribution is an asymmetrical distribution whose shape resembles a pyramid.

Accepted Answer

A) True 
 B)False

Question 4

A portfolio that combines two assets having perfectly positively correlated returns can not reduce the portfolio's overall risk below the risk of the least risky asset.

Accepted Answer

A) True 
 B)False

Question 5

An increase in nondiversifiable risk

Accepted Answer

A)  would cause an increase in the beta and would lower the required return. 
B)  would have no effect on the beta and would, therefore, cause no change in the required return. 
C)  would cause an increase in the beta and would increase the required return. 
D)  would cause a decrease in the beta and would, therefore, lower the required rate of return. 
A)  would cause an increase in the beta and would lower the required return. 
B)  would have no effect on the beta and would, therefore, cause no change in the required return. 
C)  would cause an increase in the beta and would increase the required return. 
D)  would cause a decrease in the beta and would, therefore, lower the required rate of return.

Question 6

________ risk represents the portion of an asset's risk that can be eliminated by combining assets with less than perfect positive correlation.

Accepted Answer

A)  Diversifiable 
B)  Nondiversifiable 
C)  Systematic 
D)  Total 
A)  Diversifiable 
B)  Nondiversifiable 
C)  Systematic 
D)  Total

Question 7

Most managers are risk-averse, since for a given increase in risk they require an increase in return.

Accepted Answer

A) True 
 B)False

Question 8

Unsystematic risk is the relevant portion of an asset's risk attributable to market factors that affect all firms.

Accepted Answer

A) True 
 B)False

Question 9

The ________ the coefficient of variation, the ________ the risk.

Accepted Answer

A)  lower; lower 
B)  higher; lower 
C)  lower; higher 
D)  more stable; higher 
A)  lower; lower 
B)  higher; lower 
C)  lower; higher 
D)  more stable; higher

Question 10

Which asset would the risk-averse financial manager prefer? (See below.)

Accepted Answer

A)  Asset A. 
B)  Asset B. 
C)  Asset C. 
D)  Asset D. 
A)  Asset A. 
B)  Asset B. 
C)  Asset C. 
D)  Asset D.

Question 11

Perfectly ________ correlated series move exactly together and have a correlation coefficient of ________, while perfectly ________ correlated series move exactly in opposite directions and have a correlation coefficient of ________.

Accepted Answer

A)  negatively; -1; positively; +1 
B)  negatively; +1; positively; -1 
C)  positively; -1; negatively; +1 
D)  positively; +1; negatively; -1 
A)  negatively; -1; positively; +1 
B)  negatively; +1; positively; -1 
C)  positively; -1; negatively; +1 
D)  positively; +1; negatively; -1

Question 12

Nico bought 100 shares of Cisco Systems stock for $24.00 per share on January 1, 2002. He received a dividend of $2.00 per share at the end of 2002 and $3.00 per share at the end of 2003. At the end of 2004, Nico collected a dividend of $4.00 per share and sold his stock for $18.00 per share. What was Nico's realized holding period return? What was Nico's compound annual rate of return? Explain the difference?

Accepted Answer

Realized return = @#IMG-DLM& = 12.5%
Compound Retu

Question 13

________ probability distribution shows all possible outcomes and associated probabilities for a given event.

Accepted Answer

A)  A discrete 
B)  An expected value 
C)  A bar chart 
D)  A continuous 
A)  A discrete 
B)  An expected value 
C)  A bar chart 
D)  A continuous

Question 14

Prime-grade commercial paper will most likely have a higher annual return than

Accepted Answer

A)  a Treasury bill. 
B)  a preferred stock. 
C)  a common stock. 
D)  an investment-grade bond. 
A)  a Treasury bill. 
B)  a preferred stock. 
C)  a common stock. 
D)  an investment-grade bond.

Question 15

On average, during the past 75 years, the return on small-company stocks has exceeded the return on large-company stocks.

Accepted Answer

A) True 
 B)False

Question 16

The ________ is a statistical measure of the relationship between series of numbers.

Accepted Answer

A)  coefficient of variation 
B)  standard deviation 
C)  correlation 
D)  probability 
A)  coefficient of variation 
B)  standard deviation 
C)  correlation 
D)  probability

Question 17

The beta coefficient is an index that measures the degree of movement of an asset's return in response to a change in the market return.

Accepted Answer

A) True 
 B)False

Question 18

In the capital asset pricing model, the general risk preferences of investors in the marketplace are reflected by

Accepted Answer

A)  the risk-free rate. 
B)  the level of the security market line. 
C)  the slope of the security market line. 
D)  the difference between the security market line and the risk-free rate. 
A)  the risk-free rate. 
B)  the level of the security market line. 
C)  the slope of the security market line. 
D)  the difference between the security market line and the risk-free rate.

Question 19

In no case will creating portfolios of assets result in greater risk than that of the riskiest asset included in the portfolio.

Accepted Answer

A) True 
 B)False

Question 20

A change in the risk-free rate would not be due to

Accepted Answer

A)  an international trade embargo. 
B)  a change in Federal Reserve policy. 
C)  foreign competition in the firm's product market area. 
D)  none of the above. 
A)  an international trade embargo. 
B)  a change in Federal Reserve policy. 
C)  foreign competition in the firm's product market area. 
D)  none of the above.

Combining negatively correlated assets having the same expected return results in a portfolio with level of expected return and level of risk.

A normal probability distribution is an asymmetrical distribution whose shape resembles a pyramid.

A portfolio that combines two assets having perfectly positively correlated returns can not reduce the portfolio's overall risk below the risk of the least risky asset.

An increase in nondiversifiable risk

________ risk represents the portion of an asset's risk that can be eliminated by combining assets with less than perfect positive correlation.

Most managers are risk-averse, since for a given increase in risk they require an increase in return.

Unsystematic risk is the relevant portion of an asset's risk attributable to market factors that affect all firms.

The the coefficient of variation, the the risk.

Which asset would the risk-averse financial manager prefer? (See below.)

Perfectly correlated series move exactly together and have a correlation coefficient of , while perfectly correlated series move exactly in opposite directions and have a correlation coefficient of .

________ probability distribution shows all possible outcomes and associated probabilities for a given event.

Prime-grade commercial paper will most likely have a higher annual return than

On average, during the past 75 years, the return on small-company stocks has exceeded the return on large-company stocks.

The ________ is a statistical measure of the relationship between series of numbers.

The beta coefficient is an index that measures the degree of movement of an asset's return in response to a change in the market return.

In the capital asset pricing model, the general risk preferences of investors in the marketplace are reflected by

In no case will creating portfolios of assets result in greater risk than that of the riskiest asset included in the portfolio.

A change in the risk-free rate would not be due to

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

Combining negatively correlated assets having the same expected return results in a portfolio with ________ level of expected return and ________ level of risk.

A normal probability distribution is an asymmetrical distribution whose shape resembles a pyramid.

A portfolio that combines two assets having perfectly positively correlated returns can not reduce the portfolio's overall risk below the risk of the least risky asset.

An increase in nondiversifiable risk

________ risk represents the portion of an asset's risk that can be eliminated by combining assets with less than perfect positive correlation.

Most managers are risk-averse, since for a given increase in risk they require an increase in return.

Unsystematic risk is the relevant portion of an asset's risk attributable to market factors that affect all firms.

The ________ the coefficient of variation, the ________ the risk.

Which asset would the risk-averse financial manager prefer? (See below.)

Perfectly ________ correlated series move exactly together and have a correlation coefficient of ________, while perfectly ________ correlated series move exactly in opposite directions and have a correlation coefficient of ________.

________ probability distribution shows all possible outcomes and associated probabilities for a given event.

Prime-grade commercial paper will most likely have a higher annual return than

On average, during the past 75 years, the return on small-company stocks has exceeded the return on large-company stocks.

The ________ is a statistical measure of the relationship between series of numbers.

The beta coefficient is an index that measures the degree of movement of an asset's return in response to a change in the market return.

In the capital asset pricing model, the general risk preferences of investors in the marketplace are reflected by

In no case will creating portfolios of assets result in greater risk than that of the riskiest asset included in the portfolio.

A change in the risk-free rate would not be due to

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

Combining negatively correlated assets having the same expected return results in a portfolio with level of expected return and level of risk.

The the coefficient of variation, the the risk.

Perfectly correlated series move exactly together and have a correlation coefficient of , while perfectly correlated series move exactly in opposite directions and have a correlation coefficient of .