Question 1

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. D

Question 2

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 B

Question 3

Nondiversifiable risk reflects the contribution of an asset to the risk, or standard deviation, of the portfolio.

Accepted Answer

A) True 
 B)False  True

Question 4

The capital asset pricing model (CAPM) links together unsystematic risk and return for all assets.

Accepted Answer

A) True 
 B)False

Question 5

In general, widely accepted expectations of hard times ahead tend to cause investors to become less risk-averse.

Accepted Answer

A) True 
 B)False

Question 6

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 7

The more certain the return from an asset, the less variability and therefore the less risk.

Accepted Answer

A) True 
 B)False

Question 8

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 9

The security market line (SML) reflects the required return in the marketplace for each level of nondiversifiable risk (beta).

Accepted Answer

A) True 
 B)False

Question 10

A given change in inflationary expectations will be fully reflected in a corresponding change in the returns of all assets and will be reflected graphically in a parallel shift of the SML.

Accepted Answer

A) True 
 B)False

Question 11

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?

Accepted Answer

A)  -12.5%; -4.4% 
B)  +12.5%; +4.4% 
C)  -16.7%; -4.4% 
D)  +16.7%; +4.4% 
A)  -12.5%; -4.4% 
B)  +12.5%; +4.4% 
C)  -16.7%; -4.4% 
D)  +16.7%; +4.4%

Question 12

Greater risk aversion results in lower required returns for each level of risk, whereas a reduction in risk aversion would cause the required return for each level of risk to increase.

Accepted Answer

A) True 
 B)False

Question 13

Given the following probability distribution for assets X and Y, compute the expected rate of return, variance, standard deviation, and coefficient of variation for the two assets. Which asset is a better investment?

Accepted Answer

@#IMG-DLM& Expected value = 10.7% Expect

Question 14

Assume your firm produces a good which has high sales when the economy is expanding and low sales during a recession. This firm's overall risk will be higher if it invests in another product which is counter cyclical.

Accepted Answer

A) True 
 B)False

Question 15

Diversifiable risk is the relevant portion of risk attributable to market factors that affect all firms.

Accepted Answer

A) True 
 B)False

Question 16

Coefficient of variation is a measure of relative dispersion used in comparing the expected returns of assets with differing risks.

Accepted Answer

A) True 
 B)False

Question 17

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 but in opposite direction 
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 but in opposite direction 
C)  is less responsive than the market portfolio. 
D)  is unaffected by market movement.

Question 18

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 19

An investment banker has recommended a $100,000 portfolio containing assets B, D, and F. $20,000 will be invested in asset B, with a beta of 1.5; $50,000 will be invested in asset D, with a beta of 2.0; and $30,000 will be invested in asset F, with a beta of 0.5. The beta of the portfolio is

Accepted Answer

A)  1.25. 
B)  1.33. 
C)  1.45. 
D)  unable to be determined from the information provided. 
A)  1.25. 
B)  1.33. 
C)  1.45. 
D)  unable to be determined from the information provided.

Question 20

Event risk is the chance that a totally unexpected event will have a significant effect on the value of the firm or a specific investment.

Accepted Answer

A) True 
 B)False

The goal of an efficient portfolio is to

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?

Nondiversifiable risk reflects the contribution of an asset to the risk, or standard deviation, of the portfolio.

The capital asset pricing model (CAPM) links together unsystematic risk and return for all assets.

In general, widely accepted expectations of hard times ahead tend to cause investors to become less risk-averse.

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 .

The more certain the return from an asset, the less variability and therefore the less risk.

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

The security market line (SML) reflects the required return in the marketplace for each level of nondiversifiable risk (beta).

A given change in inflationary expectations will be fully reflected in a corresponding change in the returns of all assets and will be reflected graphically in a parallel shift of the SML.

Greater risk aversion results in lower required returns for each level of risk, whereas a reduction in risk aversion would cause the required return for each level of risk to increase.

Given the following probability distribution for assets X and Y, compute the expected rate of return, variance, standard deviation, and coefficient of variation for the two assets. Which asset is a better investment?

Assume your firm produces a good which has high sales when the economy is expanding and low sales during a recession. This firm's overall risk will be higher if it invests in another product which is counter cyclical.

Diversifiable risk is the relevant portion of risk attributable to market factors that affect all firms.

Coefficient of variation is a measure of relative dispersion used in comparing the expected returns of assets with differing risks.

A beta coefficient of -1 represents an asset that

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?

An investment banker has recommended a $100,000 portfolio containing assets B, D, and F. $20,000 will be invested in asset B, with a beta of 1.5; $50,000 will be invested in asset D, with a beta of 2.0; and $30,000 will be invested in asset F, with a beta of 0.5. The beta of the portfolio is

Event risk is the chance that a totally unexpected event will have a significant effect on the value of the firm or a specific investment.

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 and Risk Refinements

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Current Liabilities Management

Filters

Exam 8: Risk and Return

The goal of an efficient portfolio is to

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?

Nondiversifiable risk reflects the contribution of an asset to the risk, or standard deviation, of the portfolio.

The capital asset pricing model (CAPM) links together unsystematic risk and return for all assets.

In general, widely accepted expectations of hard times ahead tend to cause investors to become less risk-averse.

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 ________.

The more certain the return from an asset, the less variability and therefore the less risk.

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

The security market line (SML) reflects the required return in the marketplace for each level of nondiversifiable risk (beta).

A given change in inflationary expectations will be fully reflected in a corresponding change in the returns of all assets and will be reflected graphically in a parallel shift of the SML.

Greater risk aversion results in lower required returns for each level of risk, whereas a reduction in risk aversion would cause the required return for each level of risk to increase.

Given the following probability distribution for assets X and Y, compute the expected rate of return, variance, standard deviation, and coefficient of variation for the two assets. Which asset is a better investment?

Assume your firm produces a good which has high sales when the economy is expanding and low sales during a recession. This firm's overall risk will be higher if it invests in another product which is counter cyclical.

Diversifiable risk is the relevant portion of risk attributable to market factors that affect all firms.

Coefficient of variation is a measure of relative dispersion used in comparing the expected returns of assets with differing risks.

A beta coefficient of -1 represents an asset that

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?

An investment banker has recommended a $100,000 portfolio containing assets B, D, and F. $20,000 will be invested in asset B, with a beta of 1.5; $50,000 will be invested in asset D, with a beta of 2.0; and $30,000 will be invested in asset F, with a beta of 0.5. The beta of the portfolio is

Event risk is the chance that a totally unexpected event will have a significant effect on the value of the firm or a specific investment.

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 and Risk Refinements

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Current Liabilities Management

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 .