Question 1

Investors must bear the systematic risk associated with fluctuating securities prices.

Accepted Answer

A) True 
 B)False  True

Question 2

According to the arbitrage pricing theory, the return on a stock

Accepted Answer

A) is not related to the expected return on the stock 
B) depends on the stock's responsiveness to unexpected changes 
C) is reduced through the construction of diversified portfolios 
D) equals the market return if the expected rate of inflation is realized 
A) is not related to the expected return on the stock 
B) depends on the stock's responsiveness to unexpected changes 
C) is reduced through the construction of diversified portfolios 
D) equals the market return if the expected rate of inflation is realized B

Question 3

If a beta coefficient is 1.7, that implies the return on the stock tends to be less volatile than the return on the market.

Accepted Answer

A) True 
 B)False  False

Question 4

Systematic risk is reduced through diversification.

Accepted Answer

A) True 
 B)False

Question 5

During a rising market, stocks with greater beta coefficients may be preferred.

Accepted Answer

A) True 
 B)False

Question 6

The efficient frontier in portfolio theory

Accepted Answer

A) indicates the highest return for a given risk 
B) illustrates the optimal trade-off between long and short-term capital gains 
C) quantifies systematic and unsystematic risk 
D) identifies the optimal portfolio for the investor 
A) indicates the highest return for a given risk 
B) illustrates the optimal trade-off between long and short-term capital gains 
C) quantifies systematic and unsystematic risk 
D) identifies the optimal portfolio for the investor

Question 7

Exchange rate risk refers to fluctuations in

Accepted Answer

A) the prices of stocks on the New York Stock Exchange 
B) the values of bonds and other debt instruments 
C) the price of one currency relative to other currencies 
D) a decline in the value of an investor's portfolio when securities are sold 
A) the prices of stocks on the New York Stock Exchange 
B) the values of bonds and other debt instruments 
C) the price of one currency relative to other currencies 
D) a decline in the value of an investor's portfolio when securities are sold

Question 8

Investors may reduce risk by constructing diversified portfolios but not eliminate risk.

Accepted Answer

A) True 
 B)False

Question 9

Portfolio risk is the summation of business and financial risk.

Accepted Answer

A) True 
 B)False

Question 10

Portfolio risk encompasses
1. a firm's financing decisions
2. interest rate risk
3. loss of purchasing power

Accepted Answer

A) 1 and 2 
B) 1 and 3 
C) 2 and 3 
D) all of the above 
A) 1 and 2 
B) 1 and 3 
C) 2 and 3 
D) all of the above

Question 11

Portfolios that offer the highest return for a given level of risk are "efficient."

Accepted Answer

A) True 
 B)False

Question 12

Unsystematic risk

Accepted Answer

A) is increased through diversification 
B) is reduced when markets fluctuate less 
C) is affected by the nature of how a firm finances its operations 
D) increases during periods of volatile interest rates 
A) is increased through diversification 
B) is reduced when markets fluctuate less 
C) is affected by the nature of how a firm finances its operations 
D) increases during periods of volatile interest rates

Question 13

Low beta stocks tend to generate higher returns in rising markets.

Accepted Answer

A) True 
 B)False

Question 14

An efficient portfolio
1. maximizes risk for a given return
2. minimizes risk for a given return
3. maximizes return for a given level of risk
4. minimizes return for a given level of risk

Accepted Answer

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

Question 15

Arbitrage is the act of buying a high priced asset in one market and simultaneously selling it in another market at a lower price.

Accepted Answer

A) True 
 B)False

Question 16

Diversification reduces

Accepted Answer

A) systematic risk 
B) unsystematic risk 
C) market risk 
D) purchasing power risk 
A) systematic risk 
B) unsystematic risk 
C) market risk 
D) purchasing power risk

Question 17

Investors seek to minimize risk for a given return.

Accepted Answer

A) True 
 B)False

Question 18

Given the following information: 
   
a. What are the expected returns and standard deviations of the following portfolios? 
 1. 100 percent of funds invested in Stock A 
2. 100 percent of funds invested in Stock B 
3. 50 percent of funds invested in each stock? 
b. What would be the impact if the correlation coefficient were -0.6 instead of 0.2?

Accepted Answer

a. The expected returns and standard dev

Question 19

Sources of unsystematic risk include
1. the firm's financing decisions
2. the firm's operations
3. fluctuating market prices

Accepted Answer

A) 1 and 2 
B) 1 and 3 
C) 2 and 3 
D) all of the above 
A) 1 and 2 
B) 1 and 3 
C) 2 and 3 
D) all of the above

Question 20

In a world of certainty, there would be no risk.

Accepted Answer

A) True 
 B)False

Investors must bear the systematic risk associated with fluctuating securities prices.

According to the arbitrage pricing theory, the return on a stock

If a beta coefficient is 1.7, that implies the return on the stock tends to be less volatile than the return on the market.

Systematic risk is reduced through diversification.

During a rising market, stocks with greater beta coefficients may be preferred.

The efficient frontier in portfolio theory

Exchange rate risk refers to fluctuations in

Investors may reduce risk by constructing diversified portfolios but not eliminate risk.

Portfolio risk is the summation of business and financial risk.

Portfolio risk encompasses 1. a firm's financing decisions 2. interest rate risk 3. loss of purchasing power

Portfolios that offer the highest return for a given level of risk are "efficient."

Unsystematic risk

Low beta stocks tend to generate higher returns in rising markets.

An efficient portfolio 1. maximizes risk for a given return 2. minimizes risk for a given return 3. maximizes return for a given level of risk 4. minimizes return for a given level of risk

Arbitrage is the act of buying a high priced asset in one market and simultaneously selling it in another market at a lower price.

Diversification reduces

Investors seek to minimize risk for a given return.

Sources of unsystematic risk include 1. the firm's financing decisions 2. the firm's operations 3. fluctuating market prices

In a world of certainty, there would be no risk.

An Introduction to Investments

Securities Markets

The Time Value of Money

Financial Planning, Taxation and the Efficiency of Financial Markets

Investment Companies: Mutual Funds

Closed-End Investment Companies, Real Estate Investment Trusts Reits, and Exchange-Traded Funds Etfs

Stock

The Valuation of Common Stock

Investment Returns and Aggregate Measures of Stock Markets

The Macroeconomic Environment for Investment Decisions

Behavioral Finance and Technical Analysis

The Bond Market

The Valuation of Fixed-Income Securities

Government Securities

Convertible Bonds and Convertible Preferred Stock

An Introduction to Options

Option Valuation and Strategies

Commodity and Financial Futures

Financial Planning and Investing in an Efficient Market Context

Filters

Exam 5: Risk and Portfolio Management

Investors must bear the systematic risk associated with fluctuating securities prices.

According to the arbitrage pricing theory, the return on a stock

If a beta coefficient is 1.7, that implies the return on the stock tends to be less volatile than the return on the market.

Systematic risk is reduced through diversification.

During a rising market, stocks with greater beta coefficients may be preferred.

The efficient frontier in portfolio theory

Exchange rate risk refers to fluctuations in

Investors may reduce risk by constructing diversified portfolios but not eliminate risk.

Portfolio risk is the summation of business and financial risk.

Portfolio risk encompasses 1. a firm's financing decisions 2. interest rate risk 3. loss of purchasing power

Portfolios that offer the highest return for a given level of risk are "efficient."

Unsystematic risk

Low beta stocks tend to generate higher returns in rising markets.

An efficient portfolio 1. maximizes risk for a given return 2. minimizes risk for a given return 3. maximizes return for a given level of risk 4. minimizes return for a given level of risk

Arbitrage is the act of buying a high priced asset in one market and simultaneously selling it in another market at a lower price.

Diversification reduces

Investors seek to minimize risk for a given return.

Sources of unsystematic risk include 1. the firm's financing decisions 2. the firm's operations 3. fluctuating market prices

In a world of certainty, there would be no risk.

An Introduction to Investments

Securities Markets

The Time Value of Money

Financial Planning, Taxation and the Efficiency of Financial Markets

Investment Companies: Mutual Funds

Closed-End Investment Companies, Real Estate Investment Trusts Reits, and Exchange-Traded Funds Etfs

Stock

The Valuation of Common Stock

Investment Returns and Aggregate Measures of Stock Markets

The Macroeconomic Environment for Investment Decisions

Behavioral Finance and Technical Analysis

The Bond Market

The Valuation of Fixed-Income Securities

Government Securities

Convertible Bonds and Convertible Preferred Stock

An Introduction to Options

Option Valuation and Strategies

Commodity and Financial Futures

Financial Planning and Investing in an Efficient Market Context

Filters