Question 1

The difference between the return on the market portfolio of assets and the risk-free rate of return represents the premium the investor must receive for taking the average amount of risk associated with holding the market portfolio of assets.

Accepted Answer

A) True 
 B)False

Question 2

Suppose the CAPM is true.Asset X has a standard deviation of 25%.The risk-free asset,by definition,has a standard deviation of 0%.Therefore,the expected return on asset X must exceed the risk-free rate.

Accepted Answer

A) True 
 B)False

Question 3

The coefficient of variation is a measure of relative dispersion used in comparing the risks of assets with differing expected return.

Accepted Answer

A) True 
 B)False

Question 4

If two assets having perfectly negatively correlated returns are combined in a portfolio,then some combination of those two assets will ________.

Accepted Answer

A) have more risk than either asset does on its own 
B) have no risk at all 
C) have a higher return than either asset does on its own 
D) have a lower return than either asset does on its own

Question 5

Combining two less than perfectly positively correlated assets to reduce risk is known as ________.

Accepted Answer

A) diversification 
B) valuation 
C) securitization 
D) risk aversion

Question 6

The CAPM uses standard deviation to relate an asset's risk relative to the market to the asset's required return.

Accepted Answer

A) True 
 B)False

Question 7

Tangshan China's stock is currently selling for $160.00 per share and the firm's dividends are expected to grow at 5 percent indefinitely.In addition,Tangshan China's most recent dividend was $5.50.The expected risk free rate of return is 3 percent,the expected market return is 8 percent,and Tangshan has a beta of 1.20.
(a)Based on the dividend valuation model,what return do investors expect to earn in the future?
(b)What is the expected return based on the CAPM?
(c)Would Tangshan China be a good investment at this time? Explain

Accepted Answer

The answer of Tangshan China's stock is currently selling for...

Question 8

Two assets whose returns move in the opposite directions and have a correlation coefficient of -1 are either risk-free assets or low-risk assets.

Accepted Answer

A) True 
 B)False

Question 9

Unsystematic risk is the relevant portion of an asset's risk attributable to market factors that affect all firms.

Accepted Answer

A) True 
 B)False

Question 10

The security market line is not stable over time and shifts over time in response to changing inflationary expectations.

Accepted Answer

A) True 
 B)False

Question 11

Given the following expected returns and standard deviations of assets B,M,Q,and D,which asset has the most favorable coefficient of variation?

Accepted Answer

A) Asset B 
B) Asset M 
C) Asset Q 
D) Asset D

Question 12

A normal probability distribution is an asymmetrical distribution whose shape resembles a pyramid.

Accepted Answer

A) True 
 B)False

Question 13

A beta coefficient of +1 represents an asset that ________.

Accepted Answer

A) has a higher expected return than the market portfolio 
B) has the same expected return as the market portfolio 
C) has a lower expected return than the market portfolio 
D) is unaffected by market movement

Question 14

Systematic risk is that portion of an asset's risk that is attributable to firm-specific,random causes.

Accepted Answer

A) True 
 B)False

Question 15

Table 8.2
You are going to invest $20,000 in a portfolio consisting of assets X,Y,and Z,as follows: 
-Given the information in Table 8.2,what is the expected return of this portfolio?

Accepted Answer

A) 11.40% 
B) 10.00% 
C) 11.33% 
D) 11.70%

Question 16

The steeper the slope of the security market line,the greater the degree of risk aversion.

Accepted Answer

A) True 
 B)False

Question 17

If an investor prefers a higher return investment regardless of its risk,then he is following a ________ strategy.

Accepted Answer

A) risk-seeking 
B) risk-neutral 
C) risk-averse 
D) risk-aware

Question 18

Most investors are risk-averse,since for a given increase in risk they require an increase in return.

Accepted Answer

A) True 
 B)False

Question 19

Table 8.3
Consider the following two securities X and Y. 
-A(n)________ in the beta coefficient normally causes ________ in the required return and therefore ________ in the price of the stock,everything else remaining the same.

Accepted Answer

A) increase; an increase; an increase 
B) increase; a decrease; an increase 
C) increase; an increase; a decrease 
D) decrease; a decrease; a decrease

Question 20

For a risk-indifferent investor,no change in return would be required for an increase in risk.

Accepted Answer

A) True 
 B)False

Exam 8: Risk and Return

The difference between the return on the market portfolio of assets and the risk-free rate of return represents the premium the investor must receive for taking the average amount of risk associated with holding the market portfolio of assets.

Suppose the CAPM is true.Asset X has a standard deviation of 25%.The risk-free asset,by definition,has a standard deviation of 0%.Therefore,the expected return on asset X must exceed the risk-free rate.

The coefficient of variation is a measure of relative dispersion used in comparing the risks of assets with differing expected return.

If two assets having perfectly negatively correlated returns are combined in a portfolio,then some combination of those two assets will ________.

Combining two less than perfectly positively correlated assets to reduce risk is known as ________.

The CAPM uses standard deviation to relate an asset's risk relative to the market to the asset's required return.

Two assets whose returns move in the opposite directions and have a correlation coefficient of -1 are either risk-free assets or low-risk assets.

Unsystematic risk is the relevant portion of an asset's risk attributable to market factors that affect all firms.

The security market line is not stable over time and shifts over time in response to changing inflationary expectations.

Given the following expected returns and standard deviations of assets B,M,Q,and D,which asset has the most favorable coefficient of variation?

A normal probability distribution is an asymmetrical distribution whose shape resembles a pyramid.

A beta coefficient of +1 represents an asset that ________.

Systematic risk is that portion of an asset's risk that is attributable to firm-specific,random causes.

Table 8.2 You are going to invest $20,000 in a portfolio consisting of assets X,Y,and Z,as follows: -Given the information in Table 8.2,what is the expected return of this portfolio?

The steeper the slope of the security market line,the greater the degree of risk aversion.

If an investor prefers a higher return investment regardless of its risk,then he is following a ________ strategy.

Most investors are risk-averse,since for a given increase in risk they require an increase in return.

Table 8.3 Consider the following two securities X and Y. -A(n) in the beta coefficient normally causes in the required return and therefore in the price of the stock,everything else remaining the same.

For a risk-indifferent investor,no change in return would be required for an increase in risk.

Exam 8: Risk and Return

The difference between the return on the market portfolio of assets and the risk-free rate of return represents the premium the investor must receive for taking the average amount of risk associated with holding the market portfolio of assets.

Suppose the CAPM is true.Asset X has a standard deviation of 25%.The risk-free asset,by definition,has a standard deviation of 0%.Therefore,the expected return on asset X must exceed the risk-free rate.

The coefficient of variation is a measure of relative dispersion used in comparing the risks of assets with differing expected return.

If two assets having perfectly negatively correlated returns are combined in a portfolio,then some combination of those two assets will ________.

Combining two less than perfectly positively correlated assets to reduce risk is known as ________.

The CAPM uses standard deviation to relate an asset's risk relative to the market to the asset's required return.

Two assets whose returns move in the opposite directions and have a correlation coefficient of -1 are either risk-free assets or low-risk assets.

Unsystematic risk is the relevant portion of an asset's risk attributable to market factors that affect all firms.

The security market line is not stable over time and shifts over time in response to changing inflationary expectations.

Given the following expected returns and standard deviations of assets B,M,Q,and D,which asset has the most favorable coefficient of variation?

A normal probability distribution is an asymmetrical distribution whose shape resembles a pyramid.

A beta coefficient of +1 represents an asset that ________.

Systematic risk is that portion of an asset's risk that is attributable to firm-specific,random causes.

Table 8.2 You are going to invest $20,000 in a portfolio consisting of assets X,Y,and Z,as follows: -Given the information in Table 8.2,what is the expected return of this portfolio?

The steeper the slope of the security market line,the greater the degree of risk aversion.

If an investor prefers a higher return investment regardless of its risk,then he is following a ________ strategy.

Most investors are risk-averse,since for a given increase in risk they require an increase in return.

Table 8.3 Consider the following two securities X and Y. -A(n) ________ in the beta coefficient normally causes ________ in the required return and therefore ________ in the price of the stock,everything else remaining the same.

For a risk-indifferent investor,no change in return would be required for an increase in risk.

Table 8.3 Consider the following two securities X and Y. -A(n) in the beta coefficient normally causes in the required return and therefore in the price of the stock,everything else remaining the same.