Deck 9: Characterizing Risk and Return

Question 1

We commonly measure the risk-return relationship using which of the following?

A)coefficient of variation
B)correlation coefficient
C)standard deviation
D)expected returns

Answer 1

coefficient of variation

Question 2

To find the percentage return of an investment

A)multiply the dollar return by the investment's value at the beginning of the period.
B)divide the dollar return by the investment's value at the beginning of the period.
C)multiply the dollar return by the investment's value at the end of the period.
D)divide the dollar return by the investment's value at the end of the period.

Answer 2

divide the dollar return by the investment's value at the beginning of the period.

Question 3

Which of these is the portion of total risk that is attributable to overall economic factors?

A)firm specific risk
B)market risk
C)modern portfolio risk
D)total risk

Answer 3

market risk

Question 4

Which of the following is an index that tracks 500 companies, which allows for a great deal of diversification?

A)Nasdaq
B)Fortune 500
C)S&P 500
D)Wall Street Journal

Question 5

Which of these includes any capital gain (or loss) that occurred as well as any income that you received from a specific investment?

A)average return
B)dollar return
C)market return
D)portfolio

Question 6

Which of these is a measure of risk to reward earned by an investment over a specific period of time?

A)coefficient of variation
B)market deviation
C)standard deviation
D)total variation

Question 7

Which of these statements is true?

A)When people purchase a stock, they know exactly what their dollar and percent return are going to be.
B)Many people purchase stocks as they find comfort in the certainty for this safe form of investing.
C)When people purchase a stock, they know the short-term return, but not the long-term return.
D)When people purchase a stock, they do not know what their return is going to be-either short term or in the long run.

Question 8

Which of these is the dollar return characterized as a percentage of money invested?

A)average return
B)dollar return
C)market return
D)percentage return

Question 9

Which of the following is the concept and procedure for combining securities into a portfolio to minimize risk?

A)firm specific theory
B)modern portfolio theory
C)optimal portfolio theory
D)total portfolio theory

Question 10

Which of these is the investor's combination of securities that achieves the highest expected return for a given risk level?

A)efficient portfolio
B)modern portfolio
C)optimal portfolio
D)total portfolio

Question 11

Which of the following is another term for market risk?

A)firm specific risk
B)modern portfolio risk
C)nondiversifiable risk
D)total risk

Question 12

Which of the following makes this a true statement: The shape of the efficient frontier implies that

A)diminishing returns apply to risk-taking in the investment world.
B)increasing returns apply to risk-taking in the investment world.
C)returns are not impacted by risk-taking in the investment world.
D)None of these choices complete the sentence to make it true.

Question 13

MedTech Corp. stock was $50.95 per share at the end of last year. Since then, it paid a $0.45 per share dividend. The stock price is currently $62.50. If you owned 500 shares of MedTech, what was your percent return?

A)7.20 percent
B)8.83 percent
C)22.67 percent
D)23.55 percent

Question 14

Which of these is defined as a combination of investment assets held by an investor?

A)bundle
B)market basket
C)portfolio
D)All of these choices are correct.

Question 15

Which of these is the term for portfolios with the highest return possible for each risk level?

A)efficient portfolios
B)modern portfolios
C)optimal portfolios
D)total portfolios

Question 16

Which of the following is defined as the portion of total risk that is attributable to firm or industry factors and can be reduced through diversification?

A)firm specific risk
B)market risk
C)modern portfolio risk
D)total risk

Question 17

Which statement is true?

A)The larger the standard deviation, the lower the total risk.
B)The larger the standard deviation, the higher the total risk.
C)The larger the standard deviation, the more portfolio risk.
D)The standard deviation is not an indication of total risk.

Question 18

Which of the following is defined as the volatility of an investment, which includes firm specific risk as well as market risk?

A)diversifiable risk
B)market risk
C)standard deviation
D)total risk

Question 19

Which of these is a measure summarizing the overall past performance of an investment?

A)average return
B)dollar return
C)market return
D)percentage return

Question 20

Which of the following is a measurement of the co-movement between two variables that ranges between -1 and +1?

A)coefficient of variation
B)correlation
C)standard deviation
D)total risk

Question 21

Determine which one of these three portfolios dominates another. Name the dominated portfolio and the portfolio that dominates it. Portfolio Blue has an expected return of 13 percent and risk of 17 percent. The expected return and risk of portfolio Yellow are 15 percent and 19 percent; and for the Purple portfolio are 12 percent and 18 percent.

A)Portfolio Blue dominates portfolio Yellow.
B)Portfolio Blue dominates portfolio Purple.
C)Portfolio Purple dominates portfolio Blue.
D)Portfolio Purple dominates portfolio Yellow.

Question 22

Year-to-date, Company Y had earned a 10.8 percent return. During the same time period, Company R earned 12.20 percent and Company C earned -1.56 percent. If you have a portfolio made up of 45 percent Y, 35 percent R, and 20 percent C, what is your portfolio return?

A)7.15 percent
B)8.19 percent
C)8.82 percent
D)9.44 percent

Question 23

Rank the following three stocks by their level of total risk, highest to lowest. Rail Haul has an average return of 10 percent and standard deviation of 15 percent. The average return and standard deviation of Idol Staff are 15 percent and 25 percent; and of Poker-R-Us are 12 percent and 35 percent.

A)Rail Haul, Poker-R-Us, Idol Staff
B)Idol Staff, Poker-R-Us, Rail Haul
C)Poker-R-Us, Idol Staff, Rail Haul
D)Idol Staff, Rail Haul, Poker-R-Us

Question 24

Year-to-date, Company O had earned a -2.10 percent return. During the same time period, Company V earned 8.00 percent and Company M earned 6.25 percent. If you have a portfolio made up of 40 percent Company O, 30 percent Company V, and 30 percent Company M, what is your portfolio return?

A)3.435 percent
B)5.115 percent
C)12.15 percent
D)16.35 percent

Question 25

An investor owns $10,000 of Adobe Systems stock, $15,000 of Dow Chemical, and $25,000 of Office Depot. What are the portfolio weights of each stock?

A)Adobe System = 0.3333, Dow Chemical = 0.3333, Office Depot = 0.3333
B)Adobe System = 0.2, Dow Chemical = 0.3, Office Depot = 0.5
C)Adobe System = 0.3, Dow Chemical = 0.2, Office Depot = 0.5
D)Adobe System = 0.2667, Dow Chemical = 0.3333, Office Depot = 0.4

Question 26

Determine which one of these three portfolios dominates another. Name the dominated portfolio and the portfolio that dominates it. Portfolio Blue has an expected return of 14 percent and risk of 19 percent. The expected return and risk of portfolio Yellow are 15 percent and 18 percent; and for the Purple portfolio are 16 percent and 21 percent.

A)Portfolio Blue dominates portfolio Yellow.
B)Portfolio Yellow dominates portfolio Blue.
C)Portfolio Purple dominates portfolio Blue.
D)Portfolio Purple dominates portfolio Yellow.

Question 27

The standard deviation of the past five monthly returns for K and Company are 4.25 percent, 4.13 percent, -102.05 percent, 3.25 percent, and 7.75 percent. What is the standard deviation?

A)1.40 percent
B)3.37 percent
C)3.53 percent
D)16.83 percent

Question 28

Rx Corp. stock was $60.00 per share at the end of last year. Since then, it paid a $1.00 per share dividend last year. The stock price is currently $62.50. If you owned 400 shares of Rx, what was your percent return?

A)1.67 percent
B)4.17 percent
C)5.60 percent
D)5.83 percent

Question 29

The past five monthly returns for K and Company are 4.25 percent, 4.13 percent, -2.05 percent, 3.25 percent, and 7.25 percent. What is the average monthly return?

A)1.403 percent
B)1.744 percent
C)3.366 percent
D)4.186 percent

Question 30

Determine which one of these three portfolios dominates another. Name the dominated portfolio and the portfolio that dominates it. Portfolio Blue has an expected return of 7 percent and risk of 10 percent. The expected return and risk of portfolio Yellow are 13 percent and 10 percent; and for the Purple portfolio are 9 percent and 14 percent.

A)Portfolio Blue dominates portfolio Yellow.
B)Portfolio Yellow dominates portfolio Blue.
C)Portfolio Purple dominates portfolio Blue.
D)Portfolio Purple dominates portfolio Yellow.

Question 31

Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 10 percent and standard deviation of 15 percent. The average return and standard deviation of Idol Staff are 15 percent and 25 percent; and of Poker-R-Us are 12 percent and 35 percent.

A)Rail Haul, Idol Staff, Poker-R-Us
B)Idol Staff, Poker-R-Us, Rail Haul
C)Poker-R-Us, Idol Staff, Rail Haul
D)Idol Staff, Rail Haul, Poker-R-Us

Question 32

WayCo stock was $75 per share at the end of last year. Since then, it paid a $3 per share dividend last year. The stock price is currently $70. If you owned 200 shares of WayCo, what was your percent return?

A)(-6.67 percent)
B)(-2.67 percent)
C)4.00 percent
D)4.29 percent

Question 33

The past five monthly returns for K and Company are 2.28 percent, 2.64 percent, -1.05 percent, 4.25 percent, and 9.25 percent. What is the average monthly return?

A)1.45 percent
B)1.62 percent
C)3.47 percent
D)3.89 percent

Question 34

The past five monthly returns for PG Company are 3.25 percent, -1.45 percent, 4.35 percent, 6.49 percent, and 3.75 percent. What is the average monthly return?

A)1.366 percent
B)1.608 percent
C)3.278 percent
D)3.858 percent

Question 35

TechNo stock was $25 per share at the end of last year. Since then, it paid a $1.50 per share dividend last year. The stock price is currently $23. If you owned 300 shares of TechNo, what was your percent return?

A)(-2 percent)
B)(-8 percent)
C)6 percent
D)6.5 percent

Question 36

Noble stock was $60.00 per share at the end of last year. Since then, it paid a $2.00 per share dividend last year. The stock price is currently $58. If you owned 400 shares of Noble, what was your percent return?

A)(-3.33 percent)
B)0 percent
C)3.33 percent
D)3.45 percent

Question 37

Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 8 percent and standard deviation of 10 percent. The average return and standard deviation of Idol Staff are 10 percent and 20 percent; and of Poker-R-Us are 6 percent and 15 percent.

A)Rail Haul, Idol Staff, Poker-R-Us
B)Idol Staff, Rail Haul, Poker-R-Us
C)Poker-R-Us, Idol Staff, Rail Haul
D)Idol Staff, Poker-R-Us, Rail Haul

Question 38

Rank the following three stocks by their level of total risk, highest to lowest. Rail Haul has an average return of 8 percent and standard deviation of 10 percent. The average return and standard deviation of Idol Staff are 10 percent and 20 percent; and of Poker-R-Us are 6 percent and 15 percent.

A)Rail Haul, Poker-R-Us, Idol Staff
B)Idol Staff, Rail Haul, Poker-R-Us
C)Poker-R-Us, Idol Staff, Rail Haul
D)Idol Staff, Poker-R-Us, Rail Haul

Question 39

An investor owns $2,000 of Adobe Systems stock, $4,000 of Dow Chemical, and $6,000 of Office Depot. What are the portfolio weights of each stock?

A)Adobe System = 0.3333, Dow Chemical = 0.3333, Office Depot = 0.3333
B)Adobe System = 0.1667, Dow Chemical = 0.3333, Office Depot = 0.5
C)Adobe System = 0.3333, Dow Chemical = 0.1667, Office Depot = 0.5
D)Adobe System = 0.2, Dow Chemical = 0.4, Office Depot = 0.6

Question 40

Year-to-date, Company Y had earned a 7 percent return. During the same time period, Company R earned 9.25 percent and Company C earned -2.25 percent. If you have a portfolio made up of 35 percent Y, 40 percent R, and 25 percent C, what is your portfolio return?

A)4.6667 percent
B)6.1667 percent
C)5.5875 percent
D)12.6625 percent

Question 41

You have $15,040 to invest. You want to purchase shares of Company Air at $42.50, Company B at $51.50, and Company F at $9.75. How many shares of each company should you purchase so that your portfolio consists of 20 percent Company A, 40 percent Company B, and 40 percent Company F? Report only whole stock shares.

A)Company A = 20 shares, Company B = 40 shares, Company F = 40 shares
B)Company A = 85 shares, Company B = 21shares, Company F = 39 shares
C)Company A = 71 shares, Company B = 117 shares, Company F = 617 shares
D)Company A = 353 shares, Company B = 291 shares, Company F = 1538 shares

Question 42

FedEx Corp. stock ended the previous year at $113.39 per share. It paid a $0.40 per share dividend last year. It ended last year at $126.69. If you owned 300 shares of FedEx, what was your dollar return and percent return?

A)$3,990, 11.73 percent
B)$4,110, 12.08 percent
C)$4,250, 12.29 percent
D)$2,009, 9.13 percent

Question 43

If you own 400 shares of Air Line Inc. at $44.50, 500 shares of BuyRite at $52.90, and 100 shares of MotorCity at $9.25, what are the portfolio weights of each stock?

A)Air Line = 0.3333, BuyRite = 0.3333, MotorCity = 0.3333
B)Air Line = 0.40, BuyRite = 0.50, MotorCity = 0.10
C)Air Line = 0.3940, BuyRite = 0.5855, MotorCity = 0.0205
D)Air Line = 0.4173, BuyRite = 0.4960, MotorCity = 0.0867

Question 44

You have $45,050 to invest. You want to purchase shares of Company Air at $10.25, Company B at $15.10, and Company F at $9.05. How many shares of each company should you purchase so that your portfolio consists of 30 percent Company A, 50 percent Company B, and 20 percent Company F? Report only whole stock shares.

A)Company A = 30 shares, Company B = 50 shares, Company F = 20 shares
B)Company A = 44 shares, Company B = 30 shares, Company F = 50 shares
C)Company A = 308 shares, Company B = 755 shares, Company F = 181 shares
D)Company A = 1,318 shares, Company B = 1,490 shares, Company F = 995 shares

Question 45

If you own 100 shares of Air Line Inc. at $42.50, 250 shares of BuyRite at $53.25, and 350 shares of MotorCity at $7.75, what are the portfolio weights of each stock?

A)Air Line = 0.3333, BuyRite = 0.3333, MotorCity = 0.3333
B)Air Line = 0.10, BuyRite = 0.25, MotorCity = 0.35
C)Air Line = 0.2096, BuyRite = 0.6566, MotorCity = 0.1338
D)Air Line = 0.1429, BuyRite = 0.3571, MotorCity = 0.5000

Question 46

If you own 600 shares of Alaska Corporation at $23.25, 450 shares of Best Company at $34.50, and 150 shares of Motor Company at $6.95, what are the portfolio weights of each stock?

A)Alaska = 0.6000, Best = 0.4500, Motor = 0.1500
B)Alaska = 0.3594, Best = 0.5332, Motor = 0.1074
C)Alaska = 0.4571, Best = 0.5087, Motor = 0.0342
D)Alaska = 0.2325, Best = 0.3450, Motor = 0.0695

Question 47

Year-to-date, Oracle had earned a 15.0 percent return. During the same time period, Valero Energy earned -12.96 percent and McDonald's earned 1.80 percent. If you have a portfolio made up of 50 percent Oracle, 10 percent Valero Energy, and 40 percent McDonald's, what is your portfolio return?

A)6.14 percent
B)4.86 percent
C)5.86 percent
D)6.92 percent

Question 48

The past five monthly returns for PG Company are 1.25 percent, -1.50 percent, 4.25 percent, 3.75 percent, and 1.98 percent. What is the average monthly return?

A)1.946 percent
B)2.546 percent
C)9.73 percent
D)12.73 percent

Question 49

The past five monthly returns for Kohl's are 2.55 percent, -8.62 percent, -14.44 percent, -1.52 percent, and 4.75 percent. What is the average monthly return?

A)2.21 percent
B)1.21 percent
C)(-3.46 percent)
D)(-6.17 percent)

Question 50

The standard deviation of the past five monthly returns for K and Company are 2.28 percent, 2.64 percent, -1.05 percent, 4.25 percent, and 9.25 percent. What is the standard deviation?

A)1.45 percent
B)1.62 percent
C)3.47 percent
D)3.76 percent

Question 51

Sprint Nextel Corp. stock ended the previous year at $25.00 per share. It paid a $2.57 per share dividend last year. It ended last year at $18.89. If you owned 650 shares of Sprint, what was your dollar return and percent return?

A)$2,960, 11.13 percent
B)(-$4,960, -16.13 percent)
C)(-$3,960, -15.13 percent)
D)(-$2,301, -14.16 percent)

Question 52

The standard deviation of the past five monthly returns for PG Company are 2.75 percent, -0.75 percent, 4.15 percent, 6.29 percent, and 3.84 percent. What is the standard deviation?

A)2.309 percent
B)2.581 percent
C)3.256 percent
D)3.406 percent

Question 53

Rank the following three stocks by their total risk level, highest to lowest. Night Ryder has an average return of 14 percent and standard deviation of 30 percent. The average return and standard deviation of WholeMart are 12 percent and 25 percent; and of Fruit Fly are 25 percent and 40 percent.

A)Fruit Fly, Night Ryder, WholeMart
B)Night Ryder, WholeMart, Fruit Fly
C)WholeMart, Fruit Fly, Night Ryder
D)WholeMart, Night Ryder, Fruit Fly

Question 54

Rank the following three stocks by their risk-return relationship, best to worst. Night Ryder has an average return of 33 percent and standard deviation of 40 percent. The average return and standard deviation of WholeMart are 10 percent and 20 percent; and of Fruit Fly are 19 percent and 33 percent.

A)Night Ryder, WholeMart, Fruit Fly
B)WholeMart, Fruit Fly, Night Ryder
C)Night Ryder, Fruit Fly, WholeMart
D)Fruit Fly, Whole Mart, Night Ryder

Question 55

Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 10 percent and standard deviation of 19 percent. The average return and standard deviation of Idol Staff are 12 percent and 22 percent; and of Poker-R-Us are 11 percent and 25 percent.

A)Idol Staff, Rail Haul, Poker-R-Us
B)Rail Haul, Idol Staff, Poker-R-Us
C)Idol Staff, Poker-R-Us, Rail Haul
D)Poker-R-Us, Rail Haul, Idol Staff

Question 56

At the beginning of the month, you owned $6,000 of Company G, $8,000 of Company S, and $1,000 of Company N. The monthly returns for Company G, Company S, and Company N were 7.25 percent, -1.50 percent, and -0.23 percent. What is your portfolio return?

A)1.84 percent
B)2.08 percent
C)3.71 percent
D)5.52 percent

Question 57

An investor owns $8,000 of Adobe Systems stock, $5,000 of Dow Chemical, and $3,000 of Office Depot. What are the portfolio weights of each stock?

A)Adobe: 0.5, Dow Chemical: 0.31, Office Depot: 0.19
B)Adobe: 0.5, Dow Chemical: 0.32, Office Depot: 0.18
C)Adobe: 0.5, Dow Chemical: 0.13, Office Depot: 0.27
D)Adobe: 0.5, Dow Chemical: 0.19, Office Depot: 0.31

Question 58

If you own 1,000 shares of Alaska Corporation at $19.95, 250 shares of Best Company at $17.50, and 250 shares of Motor Company at $2.50, what are the portfolio weights of each stock?

A)Alaska = 0.1000, Best = 0.2500, Motor = 0.2500
B)Alaska = 0.4994, Best = 0.4380, Motor = 0.0626
C)Alaska = 0.7996, Best = 0.1754, Motor = 0.0250
D)Alaska = 0.1995, Best = 0.1750, Motor = 0.0250

Question 59

At the beginning of the month, you owned $8,000 of Company G, $8,000 of Company S, and $3,000 of Company N. The monthly returns for Company G, Company S, and Company N were 7.80 percent, 1.50 percent, and -0.75 percent. What is your portfolio return?

A)2.85 percent
B)3.80 percent
C)4.03 percent
D)8.55 percent

Question 60

Compute the standard deviation of the five monthly returns for PG&E: 1.25 percent, -1.50 percent, 4.25 percent, 3.75 percent, and 1.98 percent.

A)1.876 percent
B)1.946 percent
C)2.046 percent
D)2.287 percent

Question 61

Which of the following statements is correct?

A)For a few firms in completely different industries, it is possible to have a correlation that approaches -2.0.
B)A correlation of -1.0 means that the two firms are uncorrelated or that they have no relationship.
C)Most common stocks have low correlation with each other since they operate in different industries.
D)None of these choices are correct.

Question 62

Which of the following statements is correct?

A)A single stock has a lot of diversifiable risk.
B)A single stock has more market risk than a diversified portfolio of stocks.
C)Bonds and stocks have a high correlation because they are both financial assets.
D)None of these choices are correct.

Question 63

Jenna receives an investment newsletter that recommends that she invest in a stock that has doubled the return of the S&P 500 in the last two months. It also claims that this stock is a "safe bet" for the future. Which of the following statements is correct regarding this information?

A)This investment newsletter is most likely correct because they most likely have some special knowledge about the stock.
B)The investment newsletter contains contrary information since the stock must be a high risk and therefore cannot also be a "safe bet."
C)It is common for individual stocks to double the return of the S&P 500 and still be a "safe bet."
D)None of these choices are correct.

Question 64

You have $10,000 to invest. You want to purchase shares of Alaska Air at $50.00, Best Buy at $50.00, and Ford Motor at $10.00. How many shares of each company should you purchase so that your portfolio consists of 25 percent Alaska Air, 40 percent Best Buy, and 35 percent Ford Motor? Report only whole stock shares.

A)50 shares of Alaska Air, 80 shares of Best Buy, and 300 shares of Ford Motor
B)50 shares of Alaska Air, 80 shares of Best Buy, and 350 shares of Ford Motor
C)40 shares of Alaska Air, 90 shares of Best Buy, and 300 shares of Ford Motor
D)75 shares of Alaska Air, 40 shares of Best Buy, and 350 shares of Ford Motor

Question 65

Which of the following statements is correct regarding total risk?

A)The coefficient of variation is a measure of the firm's total risk.
B)All firms have the same amount of total risk because they are all exposed to the same market risk.
C)Conglomerates will have less total risk than a firm that has one line of business.
D)None of these choices are correct.

Question 66

Compute the standard deviation of Kohl's monthly returns. The past five monthly returns for Kohl's are 5.55 percent, 8.62 percent, -4.44 percent, -1.52 percent, and 9.75 percent.

A)4.92 percent
B)5.07 percent
C)6.28 percent
D)6.12 percent

Question 67

Which of the following statements is correct regarding total risk?

A)A conglomerate will have more total risk than a firm that has one line of business.
B)All firms have about the same total risk because they are all exposed to the same market risk.
C)Total risk can be quantified by measuring the covariance between the firm and the overall market.
D)None of these choices are correct.

Question 68

At the beginning of the month, you owned $15,500 of General Motors, $4,500 of Starbucks, and $9,000 of Nike. The monthly returns for General Motors, Starbucks, and Nike were 7.10 percent, -1.36 percent, and -0.54 percent. What is your portfolio return?

A)(-1.12 percent)
B)1.17 percent
C)2.54 percent
D)3.42 percent

Question 69

Jane Adams invests all her money in the stock of one firm. Which of the following must be true?

A)Her return will have more volatility than the return in the overall stock market.
B)Her return will have less volatility than the return in the overall stock market.
C)Her return will have the same volatility as the return in the overall stock market.
D)There is no relationship between her return and the return in the overall stock market.

Question 70

Which of the following is correct regarding the coefficient of variation?

A)It measures the amount of standard deviation for each one percent of covariance.
B)It measures the amount of return achieved for each one percent of risk taken.
C)It measures the amount of risk taken for each one percent of return achieved.
D)None of these choices are correct.

Question 71

The past five monthly returns for PG&E are 12.14 percent, -11.37 percent, 3.77 percent, 6.47 percent, and 3.58 percent. What is the average monthly return?

A)2.92 percent
B)1.21 percent
C)(-3.46 percent)
D)3.17 percent

Question 72

Which of the following statements is correct with regards to diversification?

A)Diversifying reduces the return of the portfolio.
B)Diversifying reduces the market risk of the portfolio.
C)Diversifying reduces the dollar return of the portfolio.
D)None of these choices are correct.

Question 73

Which of the following statements is correct?

A)Stocks and long-term Treasury bonds are highly positively correlated.
B)Stocks and Treasury bills are highly positively correlated.
C)Stocks, long-term Treasury bonds, and Treasury bills are all highly correlated.
D)None of these choices are correct.

Question 74

Which of the following statements is correct?

A)Uncorrelated assets have a correlation of -1.0.
B)Most common stocks are positively correlated with each other because they are impacted by the economic factors.
C)We can typically add many stocks together to fully eliminate the market risk in a portfolio.
D)None of these choices are correct.

Question 75

Interest rates, inflation, and economic growth are economic factors that are examples of

A)firm-specific risks that can be diversified away.
B)market risk.
C)external factors that are neither firm specific risk nor market risk.
D)None of these choices are correct.

Question 76

Which of the following statements is correct?

A)A dominant portfolio has the best risk-return relationship as compared to other portfolios.
B)It is not necessarily true that when an investment achieves a high return that it is risky.
C)A low standard deviation means that the investment is less likely to achieve high returns, which means that it is more risky.
D)None of these choices are correct.

Question 77

Which of the following is correct regarding the total risk of a company?

A)A company can change its risk level over time.
B)Some firms are riskier because they offer many different products and/or services.
C)Companies can change their risk by reducing the amount of money they have borrowed.
D)None of these choices are correct.

Question 78

If you own 300 shares of Alaska Air at $15.88, 250 shares of Best Buy at $151.00, and 1,150 shares of Ford Motor at $3.51, what are the portfolio weights of each stock?

A)weight of Alaska Air: 10.23 percent, weight of Best Buy: 81.09 percent, weight of Ford Motor: 8.67 percent
B)weight of Alaska Air: 6.23 percent, weight of Best Buy: 71.09 percent, weight of Ford Motor: 22.67 percent
C)weight of Alaska Air: 15.23 percent, weight of Best Buy: 81.09 percent, weight of Ford Motor: 3.67 percent
D)weight of Alaska Air: 20.23 percent, weight of Best Buy: 76.09 percent, weight of Ford Motor: 3.67 percent

Question 79

If you own 400 shares of Xerox at $15.00, 500 shares of Qwest at $10.00, and 350 shares of Liz Claiborne at $45.00, what are the portfolio weights of each stock?

A)weight of Xerox: 22.43 percent, weight of Qwest: 11.09 percent, weight of Liz Claiborne: 58.88 percent
B)weight of Xerox: 34.67 percent, weight of Qwest: 16.69 percent, weight of Liz Claiborne: 48.64 percent
C)weight of Xerox: 22.43 percent, weight of Qwest: 18.69 percent, weight of Liz Claiborne: 58.88 percent
D)weight of Xerox: 36.98 percent, weight of Qwest: 61.07 percent, weight of Liz Claiborne: 1.95 percent

Question 80

Which of the following statements is correct?

A)The dollar return is a more useful measure to compare performance because it more accurately reflects the change in wealth of the investor.
B)A dominant portfolio is one that has the highest risk and highest return within a set of portfolios.
C)By adding stocks to your portfolio, it is possible to effectively eliminate nearly all of the market risk.
D)None of these choices are correct.