Question 1

The elements along the diagonal of the variance/covariance matrix are:

Accepted Answer

A) covariances. 
B) security weights. 
C) security selections. 
D) variances. 
E) None of the above. 
A) covariances. 
B) security weights. 
C) security selections. 
D) variances. 
E) None of the above.

Question 2

If the correlation between two stocks is -1,the returns:

Accepted Answer

A) generally move in the same direction. 
B) move perfectly opposite one another. 
C) are unrelated to one another as it is < 0. 
D) have standard deviations of equal size but opposite signs. 
E) None of the above. 
A) generally move in the same direction. 
B) move perfectly opposite one another. 
C) are unrelated to one another as it is < 0. 
D) have standard deviations of equal size but opposite signs. 
E) None of the above.

Question 3

The total number of variance and covariance terms in a portfolio is N2.How many of these would be (including non-unique)covariances?

Accepted Answer

A) N 
B) N2 
C) N2- N 
D) N2- N/2 
E) None of the above. 
A) N 
B) N2 
C) N2- N 
D) N2- N/2 
E) None of the above.

Question 4

According to the Capital Asset Pricing Model:

Accepted Answer

A) the expected return on a security is negatively and non-linearly related to the security's beta. 
B) the expected return on a security is negatively and linearly related to the security's beta. 
C) the expected return on a security is positively and linearly related to the security's variance. 
D) the expected return on a security is positively and non-linearly related to the security's beta. 
E) the expected return on a security is positively and linearly related to the security's beta. 
A) the expected return on a security is negatively and non-linearly related to the security's beta. 
B) the expected return on a security is negatively and linearly related to the security's beta. 
C) the expected return on a security is positively and linearly related to the security's variance. 
D) the expected return on a security is positively and non-linearly related to the security's beta. 
E) the expected return on a security is positively and linearly related to the security's beta.

Question 5

The stock of Big Joe's has a beta of 1.14 and an expected return of 11.6%.The risk-free rate of return is 4%.What is the expected return on the market?

Accepted Answer

A) 7.60% 
B) 8.04% 
C) 9.33% 
D) 10.67% 
E) 12.16% 
A) 7.60% 
B) 8.04% 
C) 9.33% 
D) 10.67% 
E) 12.16%

Question 6

A portfolio is:

Accepted Answer

A) a group of assets,such as stocks and bonds,held as a collective unit by an investor. 
B) the expected return on a risky asset. 
C) the expected return on a collection of risky assets. 
D) the variance of returns for a risky asset. 
E) the standard deviation of returns for a collection of risky assets. 
A) a group of assets,such as stocks and bonds,held as a collective unit by an investor. 
B) the expected return on a risky asset. 
C) the expected return on a collection of risky assets. 
D) the variance of returns for a risky asset. 
E) the standard deviation of returns for a collection of risky assets.

Question 7

A typical investor is assumed to be:

Accepted Answer

A) a fair gambler. 
B) a gambler. 
C) a single security holder. 
D) risk averse. 
E) risk neutral. 
A) a fair gambler. 
B) a gambler. 
C) a single security holder. 
D) risk averse. 
E) risk neutral.

Question 8

Which one of the following stocks is correctly priced if the risk-free rate of return is 3.6% and the market rate of return is 10.5%?

Accepted Answer

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

Question 9

The expected return on Quantpiks is:

Accepted Answer

A) 3.3% 
B) 8.5% 
C) 12.5% 
D) 20.5% 
E) None of the above. 
A) 3.3% 
B) 8.5% 
C) 12.5% 
D) 20.5% 
E) None of the above.

Question 10

The rate of return on the common stock of Flowers by Flo is expected to be 14% in a boom economy,8% in a normal economy,and only 2% in a recessionary economy.The probabilities of these economic states are 20% for a boom,70% for a normal economy,and 10% for a recession.What is the variance of the returns on the common stock of Flowers by Flo?

Accepted Answer

A) .001044 
B) .001280 
C) .001863 
D) .002001 
E) .002471 
A) .001044 
B) .001280 
C) .001863 
D) .002001 
E) .002471

Question 11

The risk premium for an individual security is computed by:

Accepted Answer

A) multiplying the security's beta by the market risk premium. 
B) multiplying the security's beta by the risk-free rate of return. 
C) adding the risk-free rate to the security's expected return. 
D) dividing the market risk premium by the quantity (1 - beta). 
E) dividing the market risk premium by the beta of the security. 
A) multiplying the security's beta by the market risk premium. 
B) multiplying the security's beta by the risk-free rate of return. 
C) adding the risk-free rate to the security's expected return. 
D) dividing the market risk premium by the quantity (1 - beta). 
E) dividing the market risk premium by the beta of the security.

Question 12

We routinely assume that investors are risk-averse return-seekers;i.e. ,they like returns and dislike risk.If so,why do we contend that only systematic risk and not total risk is important?

Accepted Answer

This question,of course,gets to the poin

Question 13

If investors possess homogeneous expectations over all assets in the market portfolio,when riskless lending and borrowing is allowed,the market portfolio is defined to:

Accepted Answer

A) be the same portfolio of risky assets chosen by all investors. 
B) have the securities weighted by their market value proportions. 
C) be a diversified portfolio. 
D) All of the above. 
E) None of the above. 
A) be the same portfolio of risky assets chosen by all investors. 
B) have the securities weighted by their market value proportions. 
C) be a diversified portfolio. 
D) All of the above. 
E) None of the above.

Question 14

An efficient set of portfolios is:

Accepted Answer

A) the complete opportunity set. 
B) the portion of the opportunity set below the minimum variance portfolio. 
C) only the minimum variance portfolio. 
D) the dominant portion of the opportunity set. 
E) only the maximum return portfolio. 
A) the complete opportunity set. 
B) the portion of the opportunity set below the minimum variance portfolio. 
C) only the minimum variance portfolio. 
D) the dominant portion of the opportunity set. 
E) only the maximum return portfolio.

Question 15

Standard deviation measures _____ risk.

Accepted Answer

A) total 
B) nondiversifiable 
C) unsystematic 
D) systematic 
E) economic 
A) total 
B) nondiversifiable 
C) unsystematic 
D) systematic 
E) economic

Question 16

What is the variance of a portfolio consisting of $3,500 in stock G and $6,500 in stock H?

Accepted Answer

A) .000209 
B) .000247 
C) .002098 
D) .037026 
E) .073600 
A) .000209 
B) .000247 
C) .002098 
D) .037026 
E) .073600

Question 17

The portfolio expected return considers which of the following factors?
I.the amount of money currently invested in each individual security
II.various levels of economic activity
III.the performance of each stock given various economic scenarios
IV.the probability of various states of the economy

Accepted Answer

A) I and III only 
B) II and IV only 
C) I,III,and IV only 
D) II,III,and IV only 
E) I,II,III,and IV 
A) I and III only 
B) II and IV only 
C) I,III,and IV only 
D) II,III,and IV only 
E) I,II,III,and IV

Question 18

Which one of the following statements is correct concerning the standard deviation of a portfolio?

Accepted Answer

A) The greater the diversification of a portfolio,the greater the standard deviation of that portfolio. 
B) The standard deviation of a portfolio can often be lowered by changing the weights of the securities in the portfolio. 
C) Standard deviation is used to determine the amount of risk premium that should apply to a portfolio. 
D) Standard deviation measures only the systematic risk of a portfolio. 
E) The standard deviation of a portfolio is equal to a weighted average of the standard deviations of the individual securities held within the portfolio. 
A) The greater the diversification of a portfolio,the greater the standard deviation of that portfolio. 
B) The standard deviation of a portfolio can often be lowered by changing the weights of the securities in the portfolio. 
C) Standard deviation is used to determine the amount of risk premium that should apply to a portfolio. 
D) Standard deviation measures only the systematic risk of a portfolio. 
E) The standard deviation of a portfolio is equal to a weighted average of the standard deviations of the individual securities held within the portfolio.

Question 19

Unsystematic risk:

Accepted Answer

A) can be effectively eliminated through portfolio diversification. 
B) is compensated for by the risk premium. 
C) is measured by beta. 
D) cannot be avoided if you wish to participate in the financial markets. 
E) is related to the overall economy. 
A) can be effectively eliminated through portfolio diversification. 
B) is compensated for by the risk premium. 
C) is measured by beta. 
D) cannot be avoided if you wish to participate in the financial markets. 
E) is related to the overall economy.

Question 20

The intercept point of the security market line is the rate of return which corresponds to:

Accepted Answer

A) the risk-free rate of return. 
B) the market rate of return. 
C) a value of zero. 
D) a value of 1.0. 
E) the beta of the market. 
A) the risk-free rate of return. 
B) the market rate of return. 
C) a value of zero. 
D) a value of 1.0. 
E) the beta of the market.

The elements along the diagonal of the variance/covariance matrix are:

If the correlation between two stocks is -1,the returns:

The total number of variance and covariance terms in a portfolio is N².How many of these would be (including non-unique)covariances?

According to the Capital Asset Pricing Model:

The stock of Big Joe's has a beta of 1.14 and an expected return of 11.6%.The risk-free rate of return is 4%.What is the expected return on the market?

A portfolio is:

A typical investor is assumed to be:

Which one of the following stocks is correctly priced if the risk-free rate of return is 3.6% and the market rate of return is 10.5%?

The expected return on Quantpiks is:

The risk premium for an individual security is computed by:

We routinely assume that investors are risk-averse return-seekers;i.e. ,they like returns and dislike risk.If so,why do we contend that only systematic risk and not total risk is important?

If investors possess homogeneous expectations over all assets in the market portfolio,when riskless lending and borrowing is allowed,the market portfolio is defined to:

An efficient set of portfolios is:

Standard deviation measures _____ risk.

What is the variance of a portfolio consisting of $3,500 in stock G and $6,500 in stock H?

The portfolio expected return considers which of the following factors? I.the amount of money currently invested in each individual security II.various levels of economic activity III.the performance of each stock given various economic scenarios IV.the probability of various states of the economy

Which one of the following statements is correct concerning the standard deviation of a portfolio?

Unsystematic risk:

The intercept point of the security market line is the rate of return which corresponds to:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Long-Term Planning

Net Present Value and Other Investment Rules

Interest Rates and Bond Valuation

Risk and Return: Lessons From Market History

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing: an Introduction

Raising Capital

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

International Corporate Finance

Filters

Exam 11: Return and Risk: the Capital Asset Pricing Model

The elements along the diagonal of the variance/covariance matrix are:

If the correlation between two stocks is -1,the returns:

The total number of variance and covariance terms in a portfolio is N2.How many of these would be (including non-unique)covariances?

According to the Capital Asset Pricing Model:

The stock of Big Joe's has a beta of 1.14 and an expected return of 11.6%.The risk-free rate of return is 4%.What is the expected return on the market?

A portfolio is:

A typical investor is assumed to be:

Which one of the following stocks is correctly priced if the risk-free rate of return is 3.6% and the market rate of return is 10.5%?

The expected return on Quantpiks is:

The risk premium for an individual security is computed by:

We routinely assume that investors are risk-averse return-seekers;i.e. ,they like returns and dislike risk.If so,why do we contend that only systematic risk and not total risk is important?

If investors possess homogeneous expectations over all assets in the market portfolio,when riskless lending and borrowing is allowed,the market portfolio is defined to:

An efficient set of portfolios is:

Standard deviation measures _____ risk.

What is the variance of a portfolio consisting of $3,500 in stock G and $6,500 in stock H?

The portfolio expected return considers which of the following factors? I.the amount of money currently invested in each individual security II.various levels of economic activity III.the performance of each stock given various economic scenarios IV.the probability of various states of the economy

Which one of the following statements is correct concerning the standard deviation of a portfolio?

Unsystematic risk:

The intercept point of the security market line is the rate of return which corresponds to:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Long-Term Planning

Net Present Value and Other Investment Rules

Interest Rates and Bond Valuation

Risk and Return: Lessons From Market History

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing: an Introduction

Raising Capital

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

International Corporate Finance

Filters

The total number of variance and covariance terms in a portfolio is N².How many of these would be (including non-unique)covariances?