Question 1

If a company's stock price decreases due to the poor sales in one of its product lines,this is an example of:

Accepted Answer

A)  systematic risk 
B)  total risk 
C)  market risk 
D)  non-systematic risk 
A)  systematic risk 
B)  total risk 
C)  market risk 
D)  non-systematic risk

Question 2

What is the expected return from an investment that has an equally likely probability to lose half of the investment or double the investment?

Accepted Answer

A)  50% 
B)  125% 
C)  -50% 
D)  200% 
A)  50% 
B)  125% 
C)  -50% 
D)  200%

Question 3

The standard deviation and expected returns for 4 portfolios (A,B,C,and D)are graphed on the following efficient frontier:   Which of the following portfolios are inefficient?

Accepted Answer

A)  A and D only 
B)  B and C only 
C)  C and D only 
D)  All are inefficient 
A)  A and D only 
B)  B and C only 
C)  C and D only 
D)  All are inefficient

Question 4

Non-systematic risk is also called:

Accepted Answer

A)  market risk 
B)  unique risk 
C)  total risk 
D)  any of the above 
A)  market risk 
B)  unique risk 
C)  total risk 
D)  any of the above

Question 5

Which one of the following is NOT an example of systematic risk?

Accepted Answer

A)  Mercedes-Benz recalls its B-series line of automobiles due to rollover safety concerns. 
B)  Central bank decides to increase interest rates. 
C)  Rising oil prices impact a number of industries including the airline industry. 
D)  A newly elected government passes a new law restricting industry subsidies. 
A)  Mercedes-Benz recalls its B-series line of automobiles due to rollover safety concerns. 
B)  Central bank decides to increase interest rates. 
C)  Rising oil prices impact a number of industries including the airline industry. 
D)  A newly elected government passes a new law restricting industry subsidies.

Question 6

Given the following forecasts,what is the standard deviation of returns?

Accepted Answer

A)  18.4120% 
B)  11.3908% 
C)  3.3900% 
D)  1.2975% 
A)  18.4120% 
B)  11.3908% 
C)  3.3900% 
D)  1.2975%

Question 7

You made an investment in your RRSP account of $3,000 in an ETF that pays quarterly dividends.The price of each unit the day of the investment is $60.The following year you invested another $2,000 in your RRSP account at a price of $ 70 a unit.How much would you have in your account two years after your initial investment if you know that the income yield of the ETF is 5% and an ETF unit is trading at $75 today?

Accepted Answer

A)  $6500.00 
B)  $6292.86 
C)  $5992.86 
D)  $6042.86 
A)  $6500.00 
B)  $6292.86 
C)  $5992.86 
D)  $6042.86

Question 8

La Maudite Corporation's annual returns for the past five years were: 11.5%,18%,-12%,-16.5%,and 28%.What are the arithmetic and geometric average annual returns for La Maudite over the five-year period?

Accepted Answer

A)  Arithmetic mean = 5.80%; geometric mean = 4.35% 
B)  Arithmetic mean = 4.35%; geometric mean = 5.80% 
C)  Arithmetic mean = 17.20%; geometric mean = 17.05% 
D)  Arithmetic mean = 17.05%; geometric mean = 17.20% 
A)  Arithmetic mean = 5.80%; geometric mean = 4.35% 
B)  Arithmetic mean = 4.35%; geometric mean = 5.80% 
C)  Arithmetic mean = 17.20%; geometric mean = 17.05% 
D)  Arithmetic mean = 17.05%; geometric mean = 17.20%

Question 9

Steve bought a share of Toronto Skates Inc.three years ago for $45.00.He was paid two annual dividends of $4.50 in the past two years.If the stock price today is $ 48.50,calculate the three year's income yield,capital gain,and total return.

Accepted Answer

A)  IY=7.78%, CGY=20.00%, TR=27.78% 
B)  IY=20.00%, CGY=9.26%, TR=29.26% 
C)  IY=20.00%, CGY=7.78%, TR=27.78% 
D)  IY=7.78%, CGY=9.26%, TR=17.04% 
A)  IY=7.78%, CGY=20.00%, TR=27.78% 
B)  IY=20.00%, CGY=9.26%, TR=29.26% 
C)  IY=20.00%, CGY=7.78%, TR=27.78% 
D)  IY=7.78%, CGY=9.26%, TR=17.04%

Question 10

What is the expected return on a stock that has a 15 percent probability of a 35 percent return,a 20 percent probability of a 25 percent return,a 50 percent probability of a 15 percent,and a probability of 15 percent of -20 percent?

Accepted Answer

A)  18.75% 
B)  14.75% 
C)  13.75% 
D)  20.75% 
A)  18.75% 
B)  14.75% 
C)  13.75% 
D)  20.75%

Question 11

A year ago,you bought some shares of CIA Company,which pays equal quarterly dividends.The income yield and the capital gain yield are 4.38 percent and 9.5 percent,respectively.The current price of CIA is $18.What was the quarterly dividend that CIA paid during the year?

Accepted Answer

A)  $0.18 
B)  $0.41 
C)  $0.72 
D)  $1.64 
A)  $0.18 
B)  $0.41 
C)  $0.72 
D)  $1.64

Question 12

The arithmetic average daily return for Dopey Inc.was 2 percent for this past week.Dopey's stock was traded at $23.70 when the market closed on Friday.The daily returns for Monday,Tuesday,Thursday,and Friday are 4.8%,5.6%,-4.0%,and 12.2%,respectively.What was Dopey's opening price on Monday?

Accepted Answer

A)  $21.47 
B)  $21.55 
C)  $21.75 
D)  $22.80 
A)  $21.47 
B)  $21.55 
C)  $21.75 
D)  $22.80

Question 13

Baxter Inc.'s annual returns for the past four years were: 2.75%,-1.8%,7.2%,and 6.5%.What are the arithmetic and geometric average annual returns for Baxter over the four-year period?

Accepted Answer

A)  Arithmetic mean = 6.80%; geometric mean = 3.35% 
B)  Arithmetic mean = 3.66%; geometric mean = 3.60% 
C)  Arithmetic mean = 14.65%; geometric mean = 10.05% 
D)  Arithmetic mean = 18.03%; geometric mean = 21.20% 
A)  Arithmetic mean = 6.80%; geometric mean = 3.35% 
B)  Arithmetic mean = 3.66%; geometric mean = 3.60% 
C)  Arithmetic mean = 14.65%; geometric mean = 10.05% 
D)  Arithmetic mean = 18.03%; geometric mean = 21.20%

Question 14

Suppose you plan to create a portfolio with three securities: Dizzy (D),Lazy (L),and Crazy (C).The expected returns for Dizzy,Lazy and Crazy are 6 percent,8 percent,and 10 percent,respectively.The standard deviation is 9 percent for Dizzy,15 percent for Lazy,and 12 percent for Crazy.The correlation coefficients among the returns for the three securities are: CORRDL= 0.6,CORRDC = -0.3,and CORRLC = 0.4.What is the portfolio standard deviation if 30 percent of the portfolio is in Dizzy and 40 percent is in Lazy?

Accepted Answer

A)  0.34% 
B)  0.87% 
C)  5.82% 
D)  9.33% 
A)  0.34% 
B)  0.87% 
C)  5.82% 
D)  9.33%

Question 15

The expected returns for Hickory Inc.and Dickory Inc.are 8 percent and 13 percent,respectively.The standard deviation is 12 percent for Hickory and 18 percent for Dickory.What is the portfolio standard deviation if 40 percent of the portfolio is in Hickory and there is no relationship between the returns on the two securities?

Accepted Answer

A)  0.7108% 
B)  1.3968% 
C)  8.4309% 
D)  11.8186% 
A)  0.7108% 
B)  1.3968% 
C)  8.4309% 
D)  11.8186%

Question 16

Which of the following is NOT a true statement?

Accepted Answer

A)  The capital gain yield measures the appreciation in the price of the asset from some starting price. 
B)  Common shares should lose from inflation over the long run as their prices and cash flows are not fixed. 
C)  The capital loss yield measures the depreciation in the price of the asset from the purchase price. 
D)  The addition of the capital gain (or loss) yield explains why the yield gap between equities and bonds has varied so much over time. 
A)  The capital gain yield measures the appreciation in the price of the asset from some starting price. 
B)  Common shares should lose from inflation over the long run as their prices and cash flows are not fixed. 
C)  The capital loss yield measures the depreciation in the price of the asset from the purchase price. 
D)  The addition of the capital gain (or loss) yield explains why the yield gap between equities and bonds has varied so much over time.

Question 17

Which portfolio represents the minimum variance portfolio?

Accepted Answer

A)  B 
B)  C 
C)  A 
D)  D 
A)  B 
B)  C 
C)  A 
D)  D

Question 18

Which of the following is TRUE about diversification?

Accepted Answer

A)  By diversifying, portfolio risk can be reduced to zero. 
B)  There is no benefit from diversification if the correlation coefficient is 1. 
C)  The variance is the weighted average of the individual securities' variances when the correlation is equal to -1. 
D)  If the covariance between two securities is negative, then the portfolio's standard deviation can be reduced to zero. 
A)  By diversifying, portfolio risk can be reduced to zero. 
B)  There is no benefit from diversification if the correlation coefficient is 1. 
C)  The variance is the weighted average of the individual securities' variances when the correlation is equal to -1. 
D)  If the covariance between two securities is negative, then the portfolio's standard deviation can be reduced to zero.

Question 19

Which of the following is NOT a correct statement?

Accepted Answer

A)  Of all the combinations of available securities, the minimum variance portfolio is a portfolio that lies on the efficient frontier and has the minimum amount of portfolio risk. 
B)  Efficient portfolios are those portfolios that offer the highest expected return for a given level of risk. 
C)  Investors prefer higher returns and lower risk, so if they are exposed to additional risk, they expect to be compensated for that additional exposure. 
D)  Portfolios on the lower segment of the minimum variance frontier dominate portfolios that lie above the minimum variance portfolio on the upper segment. 
A)  Of all the combinations of available securities, the minimum variance portfolio is a portfolio that lies on the efficient frontier and has the minimum amount of portfolio risk. 
B)  Efficient portfolios are those portfolios that offer the highest expected return for a given level of risk. 
C)  Investors prefer higher returns and lower risk, so if they are exposed to additional risk, they expect to be compensated for that additional exposure. 
D)  Portfolios on the lower segment of the minimum variance frontier dominate portfolios that lie above the minimum variance portfolio on the upper segment.

Question 20

The geometric average daily return for Grumpy Inc.was 3 percent for this past week.Grumpy's stock was traded at $18.82 when the market closed on Friday.The daily returns for Monday through Thursday are 5 percent,2 percent,-10 percent,and 8 percent,respectively.What is the opening price of Grumpy on Friday?

Accepted Answer

A)  $16.68 
B)  $16.90 
C)  $16.94 
D)  $17.11 
A)  $16.68 
B)  $16.90 
C)  $16.94 
D)  $17.11

If a company's stock price decreases due to the poor sales in one of its product lines,this is an example of:

What is the expected return from an investment that has an equally likely probability to lose half of the investment or double the investment?

The standard deviation and expected returns for 4 portfolios (A,B,C,and D)are graphed on the following efficient frontier: Which of the following portfolios are inefficient?

Non-systematic risk is also called:

Which one of the following is NOT an example of systematic risk?

Given the following forecasts,what is the standard deviation of returns?

La Maudite Corporation's annual returns for the past five years were: 11.5%,18%,-12%,-16.5%,and 28%.What are the arithmetic and geometric average annual returns for La Maudite over the five-year period?

Steve bought a share of Toronto Skates Inc.three years ago for $45.00.He was paid two annual dividends of $4.50 in the past two years.If the stock price today is $ 48.50,calculate the three year's income yield,capital gain,and total return.

What is the expected return on a stock that has a 15 percent probability of a 35 percent return,a 20 percent probability of a 25 percent return,a 50 percent probability of a 15 percent,and a probability of 15 percent of -20 percent?

A year ago,you bought some shares of CIA Company,which pays equal quarterly dividends.The income yield and the capital gain yield are 4.38 percent and 9.5 percent,respectively.The current price of CIA is $18.What was the quarterly dividend that CIA paid during the year?

The arithmetic average daily return for Dopey Inc.was 2 percent for this past week.Dopey's stock was traded at $23.70 when the market closed on Friday.The daily returns for Monday,Tuesday,Thursday,and Friday are 4.8%,5.6%,-4.0%,and 12.2%,respectively.What was Dopey's opening price on Monday?

Baxter Inc.'s annual returns for the past four years were: 2.75%,-1.8%,7.2%,and 6.5%.What are the arithmetic and geometric average annual returns for Baxter over the four-year period?

Which of the following is NOT a true statement?

Which portfolio represents the minimum variance portfolio?

Which of the following is TRUE about diversification?

Which of the following is NOT a correct statement?

An Introduction to Finance

Business Corporatefinance

Financial Statements

Financial Statement Analysis and Forecasting

Time Value of Money

Bond Valuation and Interest Rates

Equity Valuation

The Capital Asset Pricing Model Capm

Market Efficiency

Forwards,futures,and Swaps

Options

Capital Budgeting, risk Considerations, and Other Special Issues

Cash Flow Estimation and Capital Budgeting Decisions

Mergers and Acquisitions

Leasing

Investment Banking and Securities Law

Debt Instruments

Equity and Hybrid Instruments

Cost of Capital

Capital Structure Decisions

Dividend Policy

Working Capital Management: General Issues

Working Capital Management: Current Assets and Current Liabilities

Filters

Exam 8: Risk, return, and Portfolio Theory

If a company's stock price decreases due to the poor sales in one of its product lines,this is an example of:

What is the expected return from an investment that has an equally likely probability to lose half of the investment or double the investment?

The standard deviation and expected returns for 4 portfolios (A,B,C,and D)are graphed on the following efficient frontier: Which of the following portfolios are inefficient?

Non-systematic risk is also called:

Which one of the following is NOT an example of systematic risk?

Given the following forecasts,what is the standard deviation of returns?

La Maudite Corporation's annual returns for the past five years were: 11.5%,18%,-12%,-16.5%,and 28%.What are the arithmetic and geometric average annual returns for La Maudite over the five-year period?

Steve bought a share of Toronto Skates Inc.three years ago for $45.00.He was paid two annual dividends of $4.50 in the past two years.If the stock price today is $ 48.50,calculate the three year's income yield,capital gain,and total return.

What is the expected return on a stock that has a 15 percent probability of a 35 percent return,a 20 percent probability of a 25 percent return,a 50 percent probability of a 15 percent,and a probability of 15 percent of -20 percent?

A year ago,you bought some shares of CIA Company,which pays equal quarterly dividends.The income yield and the capital gain yield are 4.38 percent and 9.5 percent,respectively.The current price of CIA is $18.What was the quarterly dividend that CIA paid during the year?

The arithmetic average daily return for Dopey Inc.was 2 percent for this past week.Dopey's stock was traded at $23.70 when the market closed on Friday.The daily returns for Monday,Tuesday,Thursday,and Friday are 4.8%,5.6%,-4.0%,and 12.2%,respectively.What was Dopey's opening price on Monday?

Baxter Inc.'s annual returns for the past four years were: 2.75%,-1.8%,7.2%,and 6.5%.What are the arithmetic and geometric average annual returns for Baxter over the four-year period?

Which of the following is NOT a true statement?

Which portfolio represents the minimum variance portfolio?

Which of the following is TRUE about diversification?

Which of the following is NOT a correct statement?

An Introduction to Finance

Business Corporatefinance

Financial Statements

Financial Statement Analysis and Forecasting

Time Value of Money

Bond Valuation and Interest Rates

Equity Valuation

The Capital Asset Pricing Model Capm

Market Efficiency

Forwards,futures,and Swaps

Options

Capital Budgeting, risk Considerations, and Other Special Issues

Cash Flow Estimation and Capital Budgeting Decisions

Mergers and Acquisitions

Leasing

Investment Banking and Securities Law

Debt Instruments

Equity and Hybrid Instruments

Cost of Capital

Capital Structure Decisions

Dividend Policy

Working Capital Management: General Issues

Working Capital Management: Current Assets and Current Liabilities

Filters