Question 1

If the market rate of return is 12%, and the beta on Consolidated Edison is .8, the return on Con Ed is:

Accepted Answer

A)  greater than 12% 
B)  less than 12% 
C)  greater or less than 12%, depending on the risk-free rate of return 
D)  dependent on some other factors

Question 2

A weak-form efficient market is one in which prices reflect all public and private knowledge, including past and current information.

Accepted Answer

A) True 
 B)False

Question 3

The coefficient of variation cannot be negative.

Accepted Answer

A) True 
 B)False

Question 4

If the _____________ of a stock is known, an investor can use the security market line to determine the expected return on that stock.

Accepted Answer

A)  standard deviation 
B)  beta 
C)  coefficient of variation 
D)  unsystematic risk

Question 5

Which of the following statements is false?

Accepted Answer

A)  Diversification cannot eliminate risk that is inherent in the macro economy or market risk. 
B)  The expected rate of return on a portfolio depends on the correlation between the return on each stock. 
C)  Although gold is a risky investment by itself, including gold in a stock portfolio may reduce total risk of the portfolio. 
D)  Using the concept of correlation in a portfolio can reduce risk.

Question 6

If the expected returns for Stock A are 3% and this year's returns are 3%, next year's returns would be

Accepted Answer

A)  3% 
B)  6% 
C)  between 3% and 6% 
D)  cannot determine from the information given

Question 7

If the variance in returns for Stock A is 400% and the expected return is 5%, then the coefficient of variation is:

Accepted Answer

A)  4 
B)  80 
C)  .25 
D)  cannot be determined by this information

Question 8

Exchange rate risk is the effect on revenues and expenses from variations in the value of the U.S. dollar in terms of other currencies.

Accepted Answer

A) True 
 B)False

Question 9

A market system that allows for quick execution of customers' trades is said to be informationally efficient.

Accepted Answer

A) True 
 B)False

Question 10

In an efficient market which of the following would not be expected to cause a quick price change in the stock of a company?

Accepted Answer

A)  an unexpected announcement by a major competitor 
B)  higher than predicted earnings announcement 
C)  unexpected death of CEO 
D)  all the above would be expected to cause a quick price change

Question 11

The term "ex-ante" refers to expected or forecasted information.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is most correct?

Accepted Answer

A)  The U.S. stock market appears to be a fairly good example of a semi-strong form efficient market. 
B)  A market in which prices reflect all past and current publicly known information is a strong form efficient market. 
C)  A weak-form efficient market implies that technical analysis can be used to predict future price movements. 
D)  A strong form efficient market has the highest returns at all times

Question 13

Although gold is a risky investment by itself, including gold in a stock portfolio can make the portfolio less risky.

Accepted Answer

A) True 
 B)False

Question 14

Event risk can be eliminated through diversification.

Accepted Answer

A) True 
 B)False

Question 15

Positive correlation is when asset returns are rising.

Accepted Answer

A) True 
 B)False

Question 16

A weak-form efficient market is a market in which prices reflect all past information.

Accepted Answer

A) True 
 B)False

Question 17

Unsystematic risk is also known as:

Accepted Answer

A)  market risk 
B)  undiversifiable risk 
C)  firm-specific risk 
D)  macroeconomic risk

Question 18

If the variance for Stock A is greater than the variance for Stock B, then the standard deviation for Stock A:

Accepted Answer

A)  is greater than the standard deviation for Stock B 
B)  is less than the standard deviation for Stock B 
C)  is the same as the standard deviation for stock b 
D)  cannot be determined by this information

Question 19

The coefficient of variation measures the risk per unit of return.

Accepted Answer

A) True 
 B)False

Question 20

In an efficient market, both expected and unexpected news should cause stock prices to move up or down.

Accepted Answer

A) True 
 B)False

Exam 12: Financial Return and Risk Concepts

If the market rate of return is 12%, and the beta on Consolidated Edison is .8, the return on Con Ed is:

A weak-form efficient market is one in which prices reflect all public and private knowledge, including past and current information.

The coefficient of variation cannot be negative.

If the _____________ of a stock is known, an investor can use the security market line to determine the expected return on that stock.

Which of the following statements is false?

If the expected returns for Stock A are 3% and this year's returns are 3%, next year's returns would be

If the variance in returns for Stock A is 400% and the expected return is 5%, then the coefficient of variation is:

Exchange rate risk is the effect on revenues and expenses from variations in the value of the U.S. dollar in terms of other currencies.

A market system that allows for quick execution of customers' trades is said to be informationally efficient.

In an efficient market which of the following would not be expected to cause a quick price change in the stock of a company?

The term "ex-ante" refers to expected or forecasted information.

Which of the following statements is most correct?

Although gold is a risky investment by itself, including gold in a stock portfolio can make the portfolio less risky.

Event risk can be eliminated through diversification.

Positive correlation is when asset returns are rising.

A weak-form efficient market is a market in which prices reflect all past information.

Unsystematic risk is also known as:

If the variance for Stock A is greater than the variance for Stock B, then the standard deviation for Stock A:

The coefficient of variation measures the risk per unit of return.

In an efficient market, both expected and unexpected news should cause stock prices to move up or down.