Question 1

For a security to help diversify a portfolio, the asset​

Accepted Answer

A)   ​must generate a greater return than the average return on the portfolio
B)   should not be sensitive to changes in security prices​
C)   ​should have a return that is negatively correlated with the return on other securities in the portfolio
D)   ​must be a debt instrument if the portfolio consists primarily of stocks

Question 2

​Systematic risk
1)  is the tendency for a stock's return and the return on the market to move together
2)  is reduced by constructing a diversified portfolio
3)  depends on the firm's business and financial risk
4)  is measured by beta coefficients

Accepted Answer

A)  ​1 and 2
B)  ​2 and 3
C)  ​1 and 4
D)  ​2 and 4

Question 3

Components of the capital asset pricing model include​

Accepted Answer

A)   ​a stock's market price
B)   ​the standard deviation of a stock's return
C)   ​the rate on a risk-free security
D)   ​the investor's need for income versus capital gains

Question 4

​The risk-adjusted required rate of return excludes

Accepted Answer

A)   ​the stock's standard deviation
B)   ​the stock's beta
C)   ​the risk-free rate
D)   ​the anticipated return on the market

Question 5

An investor may reduce risk by​
1)  selecting low beta stocks
2)  constructing a diversified portfolio
3)  selecting high beta stocks

Accepted Answer

A)  ​1 and 2
B)  ​1 and 3
C)  ​2 and 3
D)  ​only 1

Question 6

The standard deviation measures an asset's expected return.​

Accepted Answer

A) True 
 B)False

Question 7

Realized returns frequently differ from expected returns.​

Accepted Answer

A) True 
 B)False

Question 8

Which of the following will reduce the required return on an investment?​

Accepted Answer

A)   ​an increase in beta and a reduction in the Treasury bill rate
B)   ​an increase in the Treasury bill rate and a decrease in beta
C)   ​a decrease in the Treasury bill rate and a decrease in beta
D)   an increase in the Treasury bill rate and an increase in beta​ C

Question 9

What is the expected return on a stock if the firm will earn 24% during a period of economic boom, 14% during normal economic periods, and 2% during a period of recession if the probabilities of these economic environments are 20%, 65%, and 15%, respectively?​

Accepted Answer

The expected return is a weigh...

Question 10

​Sources of risk include
1)  fluctuations in stock prices
2)  inflation
3)  possibility of bankruptcy

Accepted Answer

A)  ​1 and 2
B)  ​1 and 3
C)  ​2 and 3
D)  ​all three

Question 11

A diversified portfolio reduces​

Accepted Answer

A)   ​unsystematic risk
B)   ​systematic risk
C)   ​purchasing power risk
D)   ​interest rate risk

Question 12

A beta of 2.0 indicates an asset's return is more volatile than the market.​

Accepted Answer

A) True 
 B)False  True

Question 13

The standard deviation measures​

Accepted Answer

A)   ​the dispersion around an average value
B)   ​systematic risk
C)   ​unsystematic risk
D)   ​the security's high‑low prices A

Question 14

The capital asset pricing model specifies the required return adjusted for systematic risk.​

Accepted Answer

A) True 
 B)False

Question 15

The larger an investment's standard deviation, the smaller is the element of risk.​

Accepted Answer

A) True 
 B)False

Question 16

Stocks with low beta coefficients have higher required rates of return.​

Accepted Answer

A) True 
 B)False

Question 17

A portfolio consisting of securities that are highly correlated is well diversified.​

Accepted Answer

A) True 
 B)False

Question 18

Unsystematic risk is the tendency for stock prices to move together.​

Accepted Answer

A) True 
 B)False

Question 19

You bought a stock with a beta of 1.4 and earned a return of 8.3%. Did you outperform the market if, during the same period, the market rose by 7.4% and you could have earned 5.4% by investing in a Treasury bill?​

Accepted Answer

The material in this problem was not exp...

Question 20

The expected return on an investment includes both the expected income plus expected price appreciation.​

Accepted Answer

A) True 
 B)False

Exam 8: Risk and Its Measurement

For a security to help diversify a portfolio, the asset​

Correct AnswerverifiedShow Answer

​Systematic risk 1) is the tendency for a stock's return and the return on the market to move together 2) is reduced by constructing a diversified portfolio 3) depends on the firm's business and financial risk 4) is measured by beta coefficients

Correct AnswerverifiedShow Answer

Components of the capital asset pricing model include​

Correct AnswerverifiedShow Answer

​The risk-adjusted required rate of return excludes

Correct AnswerverifiedShow Answer

An investor may reduce risk by​ 1) selecting low beta stocks 2) constructing a diversified portfolio 3) selecting high beta stocks

Correct AnswerverifiedShow Answer

The standard deviation measures an asset's expected return.​

Correct AnswerverifiedShow Answer

Realized returns frequently differ from expected returns.​

Correct AnswerverifiedShow Answer

Which of the following will reduce the required return on an investment?​

Correct AnswerverifiedC

What is the expected return on a stock if the firm will earn 24% during a period of economic boom, 14% during normal economic periods, and 2% during a period of recession if the probabilities of these economic environments are 20%, 65%, and 15%, respectively?​

Correct AnswerverifiedThe expected return is a weigh...View AnswerShow Answer

​Sources of risk include 1) fluctuations in stock prices 2) inflation 3) possibility of bankruptcy

Correct AnswerverifiedShow Answer

A diversified portfolio reduces​

Correct AnswerverifiedShow Answer

A beta of 2.0 indicates an asset's return is more volatile than the market.​

Correct AnswerverifiedTrue

The standard deviation measures​

Correct AnswerverifiedA

The capital asset pricing model specifies the required return adjusted for systematic risk.​

Correct AnswerverifiedShow Answer

The larger an investment's standard deviation, the smaller is the element of risk.​

Correct AnswerverifiedShow Answer

Stocks with low beta coefficients have higher required rates of return.​

Correct AnswerverifiedShow Answer

A portfolio consisting of securities that are highly correlated is well diversified.​

Correct AnswerverifiedShow Answer

Unsystematic risk is the tendency for stock prices to move together.​

Correct AnswerverifiedShow Answer

You bought a stock with a beta of 1.4 and earned a return of 8.3%. Did you outperform the market if, during the same period, the market rose by 7.4% and you could have earned 5.4% by investing in a Treasury bill?​

Correct AnswerverifiedThe material in this problem was not exp...View AnswerShow Answer

The expected return on an investment includes both the expected income plus expected price appreciation.​

Correct AnswerverifiedShow Answer

For a security to help diversify a portfolio, the asset

Correct Answer
verified

Systematic risk 1) is the tendency for a stock's return and the return on the market to move together 2) is reduced by constructing a diversified portfolio 3) depends on the firm's business and financial risk 4) is measured by beta coefficients

Correct Answer
verified

Components of the capital asset pricing model include

Correct Answer
verified

The risk-adjusted required rate of return excludes

Correct Answer
verified

An investor may reduce risk by 1) selecting low beta stocks 2) constructing a diversified portfolio 3) selecting high beta stocks

Correct Answer
verified

The standard deviation measures an asset's expected return.

Correct Answer
verified

Realized returns frequently differ from expected returns.

Correct Answer
verified

Which of the following will reduce the required return on an investment?

Correct Answer
verified
C

What is the expected return on a stock if the firm will earn 24% during a period of economic boom, 14% during normal economic periods, and 2% during a period of recession if the probabilities of these economic environments are 20%, 65%, and 15%, respectively?

Correct Answer
verified
The expected return is a weigh...
View Answer

Sources of risk include 1) fluctuations in stock prices 2) inflation 3) possibility of bankruptcy

Correct Answer
verified

A diversified portfolio reduces

Correct Answer
verified

A beta of 2.0 indicates an asset's return is more volatile than the market.

Correct Answer
verified
True

The standard deviation measures

Correct Answer
verified
A

The capital asset pricing model specifies the required return adjusted for systematic risk.

Correct Answer
verified

The larger an investment's standard deviation, the smaller is the element of risk.

Correct Answer
verified

Stocks with low beta coefficients have higher required rates of return.

Correct Answer
verified

A portfolio consisting of securities that are highly correlated is well diversified.

Correct Answer
verified

Unsystematic risk is the tendency for stock prices to move together.

Correct Answer
verified

You bought a stock with a beta of 1.4 and earned a return of 8.3%. Did you outperform the market if, during the same period, the market rose by 7.4% and you could have earned 5.4% by investing in a Treasury bill?

Correct Answer
verified
The material in this problem was not exp...
View Answer

The expected return on an investment includes both the expected income plus expected price appreciation.

Correct Answer
verified