Question 1

The index used to represent market returns is always assigned a beta of 1.0.

Accepted Answer

A) True 
 B)False

Question 2

Traditional portfolio management

Accepted Answer

A)  concentrates on only the most recent "hot" sectors of the market. 
B)  typically centers on interindustry diversification. 
C)  uses portfolio betas and standard deviations to minimize risk. 
D)  is based on statistical measures to develop the portfolio plan. 
A)  concentrates on only the most recent "hot" sectors of the market. 
B)  typically centers on interindustry diversification. 
C)  uses portfolio betas and standard deviations to minimize risk. 
D)  is based on statistical measures to develop the portfolio plan.

Question 3

In severe market downturns different asset classes become less correlated.

Accepted Answer

A) True 
 B)False

Question 4

OKAY stock has a beta of 0.73. The market as a whole is expected to decline by 20% thereby causing OKAY stock to

Accepted Answer

A)  decline by 14.6%. 
B)  decline by 20.7%. 
C)  increase by 14.6%. 
D)  increase by 20.7%. 
A)  decline by 14.6%. 
B)  decline by 20.7%. 
C)  increase by 14.6%. 
D)  increase by 20.7%.

Question 5

When the Capital Asset Pricing Model is depicted graphically, the result is the

Accepted Answer

A)  standard deviation line. 
B)  coefficient of variation line. 
C)  security market line. 
D)  alpha-beta line. 
A)  standard deviation line. 
B)  coefficient of variation line. 
C)  security market line. 
D)  alpha-beta line.

Question 6

Analysts commonly use the ________ to measure market return.

Accepted Answer

A)  the Dow Jones Industrial Average 
B)  the rate of return on 10 year Treasury bonds 
C)  some large, mainstream company such as General Electric 
D)  the Standard & Poor's 500 Index 
A)  the Dow Jones Industrial Average 
B)  the rate of return on 10 year Treasury bonds 
C)  some large, mainstream company such as General Electric 
D)  the Standard & Poor's 500 Index

Question 7

A measure of systematic risk is

Accepted Answer

A)  standard deviation. 
B)  correlation coefficient. 
C)  beta. 
D)  variance. 
A)  standard deviation. 
B)  correlation coefficient. 
C)  beta. 
D)  variance.

Question 8

The investment choice of an individual is affected by
I. their tolerance for risk.
II. their prior investment experience.
III. their marginal tax bracket.
IV. the stability of their income.

Accepted Answer

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

Question 9

It is relatively easy to obtain the beta for actively traded stocks.

Accepted Answer

A) True 
 B)False

Question 10

If the actual rate of return on an investment portfolio is constant from year to year, the standard deviation of that portfolio is zero.

Accepted Answer

A) True 
 B)False

Question 11

If there is no relationship between the rates of return of two assets over time, these assets are

Accepted Answer

A)  positively correlated. 
B)  negatively correlated. 
C)  perfectly negatively correlated. 
D)  uncorrelated. 
A)  positively correlated. 
B)  negatively correlated. 
C)  perfectly negatively correlated. 
D)  uncorrelated.

Question 12

A portfolio with a beta of 1.5 will be 50% more volatile than the market portfolio.

Accepted Answer

A) True 
 B)False

Question 13

The statement "A portfolio is less than the sum of its parts." means:

Accepted Answer

A)  it is less expensive to buy a group of assets than to buy those assets individually. 
B)  portfolio returns will always be lower than the returns on individual stocks. 
C)  a diversified group of assets will be less volatile than the individual assets within the group. 
D)  for reasons that are not well understood, the value of a portfolio is less than the sum of the values of its components. 
A)  it is less expensive to buy a group of assets than to buy those assets individually. 
B)  portfolio returns will always be lower than the returns on individual stocks. 
C)  a diversified group of assets will be less volatile than the individual assets within the group. 
D)  for reasons that are not well understood, the value of a portfolio is less than the sum of the values of its components.

Question 14

The stock of a technology company has an expected return of 15% and a standard deviation of 20%. The stock of a pharmaceutical company has an expected return of 13% and a standard deviation of 18%. A portfolio consisting of 50% invested in each stock will have an expected return of 14 % and a standard deviation

Accepted Answer

A)  less than the average of 20% and 18%. 
B)  the average of 20% and 18%. 
C)  greater than the average of 20% and 18%. 
D)  the answer cannot be determined with the information given. 
A)  less than the average of 20% and 18%. 
B)  the average of 20% and 18%. 
C)  greater than the average of 20% and 18%. 
D)  the answer cannot be determined with the information given.

Question 15

Modern portfolio theory seeks to minimize risk and maximize return by combining highly correlated assets.

Accepted Answer

A) True 
 B)False

Question 16

Which one of the following conditions can be effectively eliminated through portfolio diversification?

Accepted Answer

A)  a general price increase nationwide 
B)  an interest rate reduction by the Federal Reserve 
C)  increased government regulation of auto emissions 
D)  change in the political party that controls Congress 
A)  a general price increase nationwide 
B)  an interest rate reduction by the Federal Reserve 
C)  increased government regulation of auto emissions 
D)  change in the political party that controls Congress

Question 17

A portfolio with a beta of 1.06

Accepted Answer

A)  is 106% more risky than the overall market. 
B)  has less risk than the lowest risk security held within that portfolio. 
C)  is 6% more risky than a risk-free asset. 
D)  is slightly more risky than the overall market. 
A)  is 106% more risky than the overall market. 
B)  has less risk than the lowest risk security held within that portfolio. 
C)  is 6% more risky than a risk-free asset. 
D)  is slightly more risky than the overall market.

Question 18

Beta measures diversifiable risk while standard deviation measures systematic risk.

Accepted Answer

A) True 
 B)False

Question 19

Marco owns the following portfolio of stocks. What is the expected return on his portfolio?

Accepted Answer

A)  4.7% 
B)  6.6% 
C)  8.4% 
D)  8.7% 
A)  4.7% 
B)  6.6% 
C)  8.4% 
D)  8.7%

Question 20

Jonathan has the following portfolio of assets.   What is the beta of Jonathan's portfolio?

Accepted Answer

A)  1.08 
B)  1.11 
C)  1.13 
D)  1.15 
A)  1.08 
B)  1.11 
C)  1.13 
D)  1.15

The index used to represent market returns is always assigned a beta of 1.0.

Traditional portfolio management

In severe market downturns different asset classes become less correlated.

OKAY stock has a beta of 0.73. The market as a whole is expected to decline by 20% thereby causing OKAY stock to

When the Capital Asset Pricing Model is depicted graphically, the result is the

Analysts commonly use the ________ to measure market return.

A measure of systematic risk is

The investment choice of an individual is affected by I. their tolerance for risk. II. their prior investment experience. III. their marginal tax bracket. IV. the stability of their income.

It is relatively easy to obtain the beta for actively traded stocks.

If the actual rate of return on an investment portfolio is constant from year to year, the standard deviation of that portfolio is zero.

If there is no relationship between the rates of return of two assets over time, these assets are

A portfolio with a beta of 1.5 will be 50% more volatile than the market portfolio.

The statement "A portfolio is less than the sum of its parts." means:

Modern portfolio theory seeks to minimize risk and maximize return by combining highly correlated assets.

Which one of the following conditions can be effectively eliminated through portfolio diversification?

A portfolio with a beta of 1.06

Beta measures diversifiable risk while standard deviation measures systematic risk.

Marco owns the following portfolio of stocks. What is the expected return on his portfolio?

Jonathan has the following portfolio of assets. What is the beta of Jonathan's portfolio?

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Return and Risk

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Managing Your Own Portfolio

Options: Puts and Calls

Futures Markets and Securities

Filters

Exam 5: Modern Portfolio Concepts

The index used to represent market returns is always assigned a beta of 1.0.

Traditional portfolio management

In severe market downturns different asset classes become less correlated.

OKAY stock has a beta of 0.73. The market as a whole is expected to decline by 20% thereby causing OKAY stock to

When the Capital Asset Pricing Model is depicted graphically, the result is the

Analysts commonly use the ________ to measure market return.

A measure of systematic risk is

The investment choice of an individual is affected by I. their tolerance for risk. II. their prior investment experience. III. their marginal tax bracket. IV. the stability of their income.

It is relatively easy to obtain the beta for actively traded stocks.

If the actual rate of return on an investment portfolio is constant from year to year, the standard deviation of that portfolio is zero.

If there is no relationship between the rates of return of two assets over time, these assets are

A portfolio with a beta of 1.5 will be 50% more volatile than the market portfolio.

The statement "A portfolio is less than the sum of its parts." means:

Modern portfolio theory seeks to minimize risk and maximize return by combining highly correlated assets.

Which one of the following conditions can be effectively eliminated through portfolio diversification?

A portfolio with a beta of 1.06

Beta measures diversifiable risk while standard deviation measures systematic risk.

Marco owns the following portfolio of stocks. What is the expected return on his portfolio?

Jonathan has the following portfolio of assets. What is the beta of Jonathan's portfolio?

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Return and Risk

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Managing Your Own Portfolio

Options: Puts and Calls

Futures Markets and Securities

Filters