Question 1

When computing the expected return on a portfolio of stocks the portfolio weights are based on the:

Accepted Answer

A) number of shares owned in each stock. 
B) price per share of each stock. 
C) market value of the total shares held in each stock. 
D) original amount invested in each stock. 
E) cost per share of each stock held. 
A) number of shares owned in each stock. 
B) price per share of each stock. 
C) market value of the total shares held in each stock. 
D) original amount invested in each stock. 
E) cost per share of each stock held.

Question 2

You own the following portfolio of stocks.What is the portfolio weight of stock C?

Accepted Answer

A) 30.8% 
B) 37.4% 
C) 42.3% 
D) 45.2% 
E) 47.9% 
A) 30.8% 
B) 37.4% 
C) 42.3% 
D) 45.2% 
E) 47.9%

Question 3

Which one of the following is an example of unsystematic risk?

Accepted Answer

A) the inflation rate increases unexpectedly 
B) the federal government lowers income taxes 
C) an oil tanker runs aground and spills its cargo 
D) interest rates decline by one-half of one percent 
E) the GDP rises by 2% more than anticipated 
A) the inflation rate increases unexpectedly 
B) the federal government lowers income taxes 
C) an oil tanker runs aground and spills its cargo 
D) interest rates decline by one-half of one percent 
E) the GDP rises by 2% more than anticipated

Question 4

The majority of the benefits from portfolio diversification can generally be achieved with just _____ diverse securities.

Accepted Answer

A) 3 
B) 6 
C) 30 
D) 50 
E) 75 
A) 3 
B) 6 
C) 30 
D) 50 
E) 75

Question 5

Total risk can be divided into:

Accepted Answer

A) standard deviation and variance. 
B) standard deviation and covariance. 
C) portfolio risk and beta. 
D) systematic risk and unsystematic risk. 
E) portfolio risk and covariance. 
A) standard deviation and variance. 
B) standard deviation and covariance. 
C) portfolio risk and beta. 
D) systematic risk and unsystematic risk. 
E) portfolio risk and covariance.

Question 6

The excess return earned by an asset that has a beta of 1.0 over that earned by a risk-free asset is referred to as the:

Accepted Answer

A) market rate of return. 
B) market risk premium. 
C) systematic return. 
D) total return. 
E) real rate of return. 
A) market rate of return. 
B) market risk premium. 
C) systematic return. 
D) total return. 
E) real rate of return.

Question 7

The elements in the off-diagonal positions of the variance/covariance matrix are:

Accepted Answer

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

Question 8

What is the portfolio variance if 30% is invested in stock S and 70% is invested in stock T?

Accepted Answer

A) .002220 
B) .004056 
C) .006224 
D) .008080 
E) .098000 
A) .002220 
B) .004056 
C) .006224 
D) .008080 
E) .098000

Question 9

The Rotor Co.stock is expected to earn 16% in a recession,7% in a normal economy,and lose 3% in a booming economy.The probability of a boom is 20% while the probability of a normal economy is 55% and the chance of a recession is 25%.What is the expected rate of return on this stock?

Accepted Answer

A) 6.67% 
B) 7.25% 
C) 7.32% 
D) 8.40% 
E) 12.50% 
A) 6.67% 
B) 7.25% 
C) 7.32% 
D) 8.40% 
E) 12.50%

Question 10

What is the expected return on a portfolio which is invested 20% in stock A,50% in stock B,and 30% in stock C?

Accepted Answer

A) 7.40% 
B) 8.25% 
C) 8.33% 
D) 9.45% 
E) 9.50% 
A) 7.40% 
B) 8.25% 
C) 8.33% 
D) 9.45% 
E) 9.50%

Question 11

The stock of Martin Industries has a beta of 1.43.The risk-free rate of return is 3.6% and the market risk premium is 9%.What is the expected rate of return on Martin Industries stock?

Accepted Answer

A) 11.3% 
B) 14.1% 
C) 16.5% 
D) 17.4% 
E) 18.0% 
A) 11.3% 
B) 14.1% 
C) 16.5% 
D) 17.4% 
E) 18.0%

Question 12

The expected return on a portfolio:

Accepted Answer

A) can be greater than the expected return on the best performing security in the portfolio. 
B) can be less than the expected return on the worst performing security in the portfolio. 
C) is independent of the performance of the overall economy. 
D) is limited by the returns on the individual securities within the portfolio. 
E) is an arithmetic average of the returns of the individual securities when the weights of those securities are unequal. 
A) can be greater than the expected return on the best performing security in the portfolio. 
B) can be less than the expected return on the worst performing security in the portfolio. 
C) is independent of the performance of the overall economy. 
D) is limited by the returns on the individual securities within the portfolio. 
E) is an arithmetic average of the returns of the individual securities when the weights of those securities are unequal.

Question 13

What is the expected return on this portfolio?

Accepted Answer

A) 9.50% 
B) 9.67% 
C) 9.78% 
D) 10.59% 
E) 10.87% 
A) 9.50% 
B) 9.67% 
C) 9.78% 
D) 10.59% 
E) 10.87%

Question 14

You would like to combine a risky stock with a beta of 1.8 with U.S.Treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market.What percentage of the portfolio should be invested in Treasury bills?

Accepted Answer

A) 25% 
B) 44% 
C) 50% 
D) 62% 
E) 78% 
A) 25% 
B) 44% 
C) 50% 
D) 62% 
E) 78%

Question 15

You own a portfolio with the following expected returns given the various states of the economy.What is the overall portfolio expected return?

Accepted Answer

A) 6.3% 
B) 6.8% 
C) 7.6% 
D) 10.0% 
E) 10.8% 
A) 6.3% 
B) 6.8% 
C) 7.6% 
D) 10.0% 
E) 10.8%

Question 16

The combination of the efficient set of portfolios with a riskless lending and borrowing rate results in:

Accepted Answer

A) the capital market line which shows that all investors will only invest in the riskless asset. 
B) the capital market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio. 
C) the security market line which shows that all investors will invest in the riskless asset only. 
D) the security market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio. 
E) None of the above. 
A) the capital market line which shows that all investors will only invest in the riskless asset. 
B) the capital market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio. 
C) the security market line which shows that all investors will invest in the riskless asset only. 
D) the security market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio. 
E) None of the above.

Question 17

The relationship between the covariance of the security with the market to the variance is called the:

Accepted Answer

A) alpha. 
B) beta. 
C) total risk. 
D) standard deviation. 
E) expected return. 
A) alpha. 
B) beta. 
C) total risk. 
D) standard deviation. 
E) expected return.

Question 18

The opportunity set of portfolios is:

Accepted Answer

A) all possible return combinations of those securities. 
B) all possible risk combinations of those securities. 
C) all possible risk-return combinations of those securities. 
D) the best or highest risk-return combination. 
E) the lowest risk-return combination. 
A) all possible return combinations of those securities. 
B) all possible risk combinations of those securities. 
C) all possible risk-return combinations of those securities. 
D) the best or highest risk-return combination. 
E) the lowest risk-return combination.

Question 19

The percentage of a portfolio's total value invested in a particular asset is called that asset's:

Accepted Answer

A) portfolio return. 
B) portfolio weight. 
C) portfolio risk. 
D) rate of return. 
E) investment value. 
A) portfolio return. 
B) portfolio weight. 
C) portfolio risk. 
D) rate of return. 
E) investment value.

Question 20

The amount of systematic risk present in a particular risky asset,relative to the systematic risk present in an average risky asset,is called the particular asset's:

Accepted Answer

A) beta coefficient. 
B) reward-to-risk ratio. 
C) total risk. 
D) diversifiable risk. 
E) Treynor index. 
A) beta coefficient. 
B) reward-to-risk ratio. 
C) total risk. 
D) diversifiable risk. 
E) Treynor index.

When computing the expected return on a portfolio of stocks the portfolio weights are based on the:

You own the following portfolio of stocks.What is the portfolio weight of stock C?

Which one of the following is an example of unsystematic risk?

The majority of the benefits from portfolio diversification can generally be achieved with just _____ diverse securities.

Total risk can be divided into:

The excess return earned by an asset that has a beta of 1.0 over that earned by a risk-free asset is referred to as the:

The elements in the off-diagonal positions of the variance/covariance matrix are:

What is the portfolio variance if 30% is invested in stock S and 70% is invested in stock T?

The Rotor Co.stock is expected to earn 16% in a recession,7% in a normal economy,and lose 3% in a booming economy.The probability of a boom is 20% while the probability of a normal economy is 55% and the chance of a recession is 25%.What is the expected rate of return on this stock?

What is the expected return on a portfolio which is invested 20% in stock A,50% in stock B,and 30% in stock C?

The stock of Martin Industries has a beta of 1.43.The risk-free rate of return is 3.6% and the market risk premium is 9%.What is the expected rate of return on Martin Industries stock?

The expected return on a portfolio:

What is the expected return on this portfolio?

You would like to combine a risky stock with a beta of 1.8 with U.S.Treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market.What percentage of the portfolio should be invested in Treasury bills?

You own a portfolio with the following expected returns given the various states of the economy.What is the overall portfolio expected return?

The combination of the efficient set of portfolios with a riskless lending and borrowing rate results in:

The relationship between the covariance of the security with the market to the variance is called the:

The opportunity set of portfolios is:

The percentage of a portfolio's total value invested in a particular asset is called that asset's:

The amount of systematic risk present in a particular risky asset,relative to the systematic risk present in an average risky asset,is called the particular asset's:

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

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

When computing the expected return on a portfolio of stocks the portfolio weights are based on the:

You own the following portfolio of stocks.What is the portfolio weight of stock C?

Which one of the following is an example of unsystematic risk?

The majority of the benefits from portfolio diversification can generally be achieved with just _____ diverse securities.

Total risk can be divided into:

The excess return earned by an asset that has a beta of 1.0 over that earned by a risk-free asset is referred to as the:

The elements in the off-diagonal positions of the variance/covariance matrix are:

What is the portfolio variance if 30% is invested in stock S and 70% is invested in stock T?

The Rotor Co.stock is expected to earn 16% in a recession,7% in a normal economy,and lose 3% in a booming economy.The probability of a boom is 20% while the probability of a normal economy is 55% and the chance of a recession is 25%.What is the expected rate of return on this stock?

What is the expected return on a portfolio which is invested 20% in stock A,50% in stock B,and 30% in stock C?

The stock of Martin Industries has a beta of 1.43.The risk-free rate of return is 3.6% and the market risk premium is 9%.What is the expected rate of return on Martin Industries stock?

The expected return on a portfolio:

What is the expected return on this portfolio?

You would like to combine a risky stock with a beta of 1.8 with U.S.Treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market.What percentage of the portfolio should be invested in Treasury bills?

You own a portfolio with the following expected returns given the various states of the economy.What is the overall portfolio expected return?

The combination of the efficient set of portfolios with a riskless lending and borrowing rate results in:

The relationship between the covariance of the security with the market to the variance is called the:

The opportunity set of portfolios is:

The percentage of a portfolio's total value invested in a particular asset is called that asset's:

The amount of systematic risk present in a particular risky asset,relative to the systematic risk present in an average risky asset,is called the particular asset's:

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