Question 1

Which one of these is the best example of systematic risk?

Accepted Answer

A)  Discovery of a major gas field
B)  Decrease in textile imports
C)  Increase in agricultural exports
D)  Decrease in gross domestic product
E)  Decrease in management bonuses for banking executivesF) C) and D)
G) A) and B)

Question 2

Westover stock is expected to return 36 percent in a boom,14 percent in a normal economy,and lose 75 percent in a recession.The probabilities of a boom,normal economy,and a recession are 2 percent,93 percent,and 5 percent,respectively.What is the standard deviation of the returns on this stock?

Accepted Answer

A)  19.90 percent
B)  20.52 percent
C)  20.41 percent
D)  18.79 percent
E)  19.74 percentF) C) and D)
G) B) and D)

Question 3

Given the following information,what is the standard deviation of the returns on a portfolio that is invested 35 percent in both Stocks A and C,and 30 percent in Stock B?

Accepted Answer

A)  1.95 percent
B)  1.13 percent
C)  3.67 percent
D)  2.91 percent
E)  2.36 percentF) B) and D)
G) None of the above

Question 4

Which one of the following portfolios will have a beta of zero?

Accepted Answer

A)  A portfolio that is equally as risky as the overall market
B)  A portfolio that consists of a single stock
C)  A portfolio comprised solely of U.S.Treasury bills
D)  A portfolio with a zero variance of returns
E)  No portfolio can have a beta of zero.F) A) and B)
G) A) and E)

Question 5

Which one of these represents systematic risk?

Accepted Answer

A)  Major layoff by a regional manufacturer of power boats
B)  Increase in consumption created by a reduction in personal tax rates
C)  Surprise firing of a firm's chief financial officer
D)  Closure of a major retail chain of stores
E)  Product recall by one manufacturerF) A) and E)
G) B) and C)

Question 6

Which statement is true?

Accepted Answer

A)  The expected rate of return on any portfolio must be positive.
B)  The arithmetic average of the betas for each security held in a portfolio must equal 1.0.
C)  The beta of any portfolio must be 1.0.
D)  The weights of the securities held in any portfolio must equal 1.0.
E)  The standard deviation of any portfolio must equal 1.0.F) B) and E)
G) A) and B)

Question 7

A portfolio is comprised of 35 securities with varying betas.The lowest beta for an individual security is .74 and the highest of the security betas of 1.51.Given this information,you know that the portfolio beta:

Accepted Answer

A)  must be 1.0 because of the large number of securities in the portfolio.
B)  is the geometric average of the individual security betas.
C)  must be less than the market beta.
D)  will be between 0 and 1.0.
E)  will be greater than or equal to .74 but less than or equal to 1.51.F) B) and E)
G) B) and D)

Question 8

The amount of systematic risk present in a particular risky asset relative to that in an average risky asset is measured by the:

Accepted Answer

A)  squared deviation.
B)  beta coefficient.
C)  standard deviation.
D)  mean.
E)  variance.F) A) and E)
G) A) and D)

Question 9

Standard deviation measures risk while beta measures risk.

Accepted Answer

A)  systematic; unsystematic
B)  unsystematic; systematic
C)  total; unsystematic
D)  total; systematic
E)  asset-specific; marketF) C) and D)
G) A) and B)

Question 10

The addition of a risky security to a fully diversified portfolio:

Accepted Answer

A)  must decrease the portfolio's expected return.
B)  must increase the portfolio beta.
C)  may or may not affect the portfolio beta.
D)  will increase the unsystematic risk of the portfolio.
E)  will have no effect on the portfolio beta or its expected return.F) A) and D)
G) A) and C)

Question 11

Portfolio diversification eliminates:

Accepted Answer

A)  all investment risk.
B)  the portfolio risk premium.
C)  market risk.
D)  unsystematic risk.
E)  the reward for bearing risk.F) C) and D)
G) B) and E)

Question 12

The systematic risk principle states that the expected return on a risky asset depends only on the asset? s risk.

Accepted Answer

A)  unique
B)  diversifiable
C)  asset-specific
D)  market
E)  unsystematicF) D) and E)
G) None of the above

Question 13

The beta of a risky portfolio cannot be less than nor greater than _.

Accepted Answer

A)  0; 1
B)  1; the market beta
C)  the lowest individual beta in the portfolio; market beta
D)  the market beta; the highest individual beta in the portfolio
E)  the lowest individual beta in the portfolio; the highest individual beta in the portfolioF) C) and E)
G) D) and E)

Question 14

A portfolio is:

Accepted Answer

A)  a single risky security.
B)  any security that is equally as risky as the overall market.
C)  any new issue of stock.
D)  a group of assets held by an investor.
E)  an investment in a risk-free security.F) A) and C)
G) A) and D)

Question 15

The capital asset pricing model:

Accepted Answer

A)  assumes the market has a beta of zero and the risk-free rate is positive.
B)  rewards investors based on total risk assumed.
C)  considers the relationship between the fluctuations in a security?s returns versus the market?s returns.
D)  applies to portfolios but not to individual securities.
E)  assumes the market risk premium is constant over time.F) B) and D)
G) None of the above

Question 16

Which one of the following is the vertical intercept of the security market line?

Accepted Answer

A)  Market rate of return
B)  Individual security rate of return
C)  Market risk premium
D)  Individual security beta multiplied by the market risk premium
E)  Risk-free rateF) B) and E)
G) B) and D)

Question 17

A stock is expected to return 13 percent in an economic boom,10 percent in a normal economy,and 3 percent in a recessionary economy.Which one of the following will lower the overall expected rate of return on this stock?

Accepted Answer

A)  An increase in the rate of return in a recessionary economy
B)  An increase in the probability of an economic boom
C)  A decrease in the probability of a recession occurring
D)  A decrease in the probability of an economic boom
E)  An increase in the rate of return for a normal economyF) A) and B)
G) A) and C)

Question 18

Bruno's stock should return 14 percent in a boom,11 percent in a normal economy,and 4 percent in a recession.The probabilities of a boom,normal economy,and recession are 8 percent,90 percent,and 2 percent,respectively.What is the variance of the returns on this stock?

Accepted Answer

A)  011387
B)  .000169
C)  001506
D)  001538
E)  011561F) A) and E)
G) A) and D)

Question 19

Assume you own a portfolio of diverse securities which are each correctly priced.Given this,the reward-to-risk ratio:

Accepted Answer

A)  for the portfolio must equal 1.0.
B)  for the portfolio must be less than the market risk premium.
C)  for each security must equal zero.
D)  of each security is equal to the risk-free rate.
E)  of each security must equal the slope of the security market line.F) A) and D)
G) B) and E)

Exam 11: Risk and Return

The capital asset pricing model:

Correct Answer
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The amount of systematic risk present in a particular risky asset relative to that in an average risky asset is measured by the:

Correct Answer
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The systematic risk principle states that the expected return on a risky asset depends only on the asset? s risk.

Correct Answer
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A portfolio is comprised of 35 securities with varying betas.The lowest beta for an individual security is .74 and the highest of the security betas of 1.51.Given this information,you know that the portfolio beta:

Correct Answer
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A portfolio is:

Correct Answer
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The addition of a risky security to a fully diversified portfolio:

Correct Answer
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A stock is expected to return 13 percent in an economic boom,10 percent in a normal economy,and 3 percent in a recessionary economy.Which one of the following will lower the overall expected rate of return on this stock?

Correct Answer
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Which one of the following is the vertical intercept of the security market line?

Correct Answer
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Standard deviation measures risk while beta measures risk.

Correct Answer
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Assume you own a portfolio of diverse securities which are each correctly priced.Given this,the reward-to-risk ratio:

Correct Answer
verified

The beta of a risky portfolio cannot be less than nor greater than _.

Correct Answer
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Which one of the following portfolios will have a beta of zero?

Correct Answer
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Portfolio diversification eliminates:

Correct Answer
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Bruno's stock should return 14 percent in a boom,11 percent in a normal economy,and 4 percent in a recession.The probabilities of a boom,normal economy,and recession are 8 percent,90 percent,and 2 percent,respectively.What is the variance of the returns on this stock?

Correct Answer
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Which one of these is the best example of systematic risk?

Correct Answer
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Which statement is true?

Correct Answer
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Westover stock is expected to return 36 percent in a boom,14 percent in a normal economy,and lose 75 percent in a recession.The probabilities of a boom,normal economy,and a recession are 2 percent,93 percent,and 5 percent,respectively.What is the standard deviation of the returns on this stock?

Correct Answer
verified

Which one of these represents systematic risk?

Correct Answer
verified

Given the following information,what is the standard deviation of the returns on a portfolio that is invested 35 percent in both Stocks A and C,and 30 percent in Stock B?

Correct Answer
verified

Exam 11: Risk and Return

The capital asset pricing model:

Correct AnswerverifiedShow Answer

The amount of systematic risk present in a particular risky asset relative to that in an average risky asset is measured by the:

Correct AnswerverifiedShow Answer

The systematic risk principle states that the expected return on a risky asset depends only on the asset? s risk.

Correct AnswerverifiedShow Answer

A portfolio is comprised of 35 securities with varying betas.The lowest beta for an individual security is .74 and the highest of the security betas of 1.51.Given this information,you know that the portfolio beta:

Correct AnswerverifiedShow Answer

A portfolio is:

Correct AnswerverifiedShow Answer

The addition of a risky security to a fully diversified portfolio:

Correct AnswerverifiedShow Answer

A stock is expected to return 13 percent in an economic boom,10 percent in a normal economy,and 3 percent in a recessionary economy.Which one of the following will lower the overall expected rate of return on this stock?

Correct AnswerverifiedShow Answer

Which one of the following is the vertical intercept of the security market line?

Correct AnswerverifiedShow Answer

Standard deviation measures risk while beta measures risk.

Correct AnswerverifiedShow Answer

Assume you own a portfolio of diverse securities which are each correctly priced.Given this,the reward-to-risk ratio:

Correct AnswerverifiedShow Answer

The beta of a risky portfolio cannot be less than nor greater than _.

Correct AnswerverifiedShow Answer

Which one of the following portfolios will have a beta of zero?

Correct AnswerverifiedShow Answer

Portfolio diversification eliminates:

Correct AnswerverifiedShow Answer

Bruno's stock should return 14 percent in a boom,11 percent in a normal economy,and 4 percent in a recession.The probabilities of a boom,normal economy,and recession are 8 percent,90 percent,and 2 percent,respectively.What is the variance of the returns on this stock?

Correct AnswerverifiedShow Answer

Which one of these is the best example of systematic risk?

Correct AnswerverifiedShow Answer

Which statement is true?

Correct AnswerverifiedShow Answer

Westover stock is expected to return 36 percent in a boom,14 percent in a normal economy,and lose 75 percent in a recession.The probabilities of a boom,normal economy,and a recession are 2 percent,93 percent,and 5 percent,respectively.What is the standard deviation of the returns on this stock?

Correct AnswerverifiedShow Answer

Which one of these represents systematic risk?

Correct AnswerverifiedShow Answer

Given the following information,what is the standard deviation of the returns on a portfolio that is invested 35 percent in both Stocks A and C,and 30 percent in Stock B?

Correct AnswerverifiedShow Answer

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