Question 1

A risk neutral investor will assess investment alternatives based on their:

Accepted Answer

A)  expected returns. 
B)  relative expected risks. 
C)  relative expected risks and returns. 
D)  none of the above. 
A)  expected returns. 
B)  relative expected risks. 
C)  relative expected risks and returns. 
D)  none of the above.

Question 2

Which of the following statements is true?

Accepted Answer

A)  Higher risk means you are more certain about your expected return. 
B)  Risk is a measure of how certain you are about your expected return. 
C)  The rate of return is what you earn on an investment, stated in dollar terms. 
D)  None of the above. 
A)  Higher risk means you are more certain about your expected return. 
B)  Risk is a measure of how certain you are about your expected return. 
C)  The rate of return is what you earn on an investment, stated in dollar terms. 
D)  None of the above.

Question 3

Covariance measures:

Accepted Answer

A)  how the returns of two assets move in opposite directions. 
B)  how the risks of two assets move in opposite directions. 
C)  how the risks of two assets move together. 
D)  how the returns of two assets move together. 
A)  how the returns of two assets move in opposite directions. 
B)  how the risks of two assets move in opposite directions. 
C)  how the risks of two assets move together. 
D)  how the returns of two assets move together.

Question 4

A risk averse person will:

Accepted Answer

A)  have to be compensated to participate in a fair game. 
B)  participate in fair game. 
C)  pay to participate in a fair game. 
D)  none of the above. 
A)  have to be compensated to participate in a fair game. 
B)  participate in fair game. 
C)  pay to participate in a fair game. 
D)  none of the above.

Question 5

If returns are normally distributed, the expected return plus or minus 1.96 standard deviations will cover what percentage of all possible returns?

Accepted Answer

A)  99%. 
B)  90%. 
C)  68%. 
D)  95%. 
A)  99%. 
B)  90%. 
C)  68%. 
D)  95%.

Question 6

Given that a stock has generated returns of 6%, 18%, -5% and 20% over the last four years, the standard deviation of stock returns was:

Accepted Answer

A)  9.03%. 
B)  10.50%. 
C)  11.62%. 
D)  12.46%. 
A)  9.03%. 
B)  10.50%. 
C)  11.62%. 
D)  12.46%.

Question 7

Which of the following statements is false?

Accepted Answer

A)  The greater the risk, the larger the return investors require for bearing that risk. 
B)  The risk and return relationship is one of the most fundamental relationships in finance. 
C)  The rate of return investors require for an investment depends on the risk associated with that investment. 
D)  None of the above. 
A)  The greater the risk, the larger the return investors require for bearing that risk. 
B)  The risk and return relationship is one of the most fundamental relationships in finance. 
C)  The rate of return investors require for an investment depends on the risk associated with that investment. 
D)  None of the above.

Question 8

A stock which has possible returns of 40% and -5% each with equal likelihood has an expected return of:

Accepted Answer

A)  10%. 
B)  15.5%. 
C)  17.5%. 
D)  20%. 
A)  10%. 
B)  15.5%. 
C)  17.5%. 
D)  20%.

Question 9

A beta equal to one means the stock has:

Accepted Answer

A)  less systematic risk than the market. 
B)  no systematic risk. 
C)  the same systematic risk as the market. 
D)  more systematic risk than the market. 
A)  less systematic risk than the market. 
B)  no systematic risk. 
C)  the same systematic risk as the market. 
D)  more systematic risk than the market.

Question 10

You hold a portfolio of two assets. When the return on one asset is positive, the return on the other asset is negative. We can conclude that:

Accepted Answer

A)  the correlation between the two assets in the portfolio is negative. 
B)  there is no correlation between the two assets in the portfolio. 
C)  the correlation between the two assets in the portfolio is positive. 
D)  none of the above. 
A)  the correlation between the two assets in the portfolio is negative. 
B)  there is no correlation between the two assets in the portfolio. 
C)  the correlation between the two assets in the portfolio is positive. 
D)  none of the above.

Question 11

The expected return on Fishermans Inn Ltd shares is 10.8 per cent. If the expected return on the market is 10 per cent and the beta for Fishermans Inn is 1.7, then what is the risk-free rate?

Accepted Answer

A)  4.5%. 
B)  5.0%. 
C)  5.5%. 
D)  6.0%. 
A)  4.5%. 
B)  5.0%. 
C)  5.5%. 
D)  6.0%.

Question 12

1 year ago, you bought a share from Bechtel Ltd for $110. Today it's worth $115. Over the year, the company did not pay any dividend. What total return did you earn on this share over the past year?

Accepted Answer

A)  -4.35%. 
B)  4.35%. 
C)  4.45%. 
D)  4.54%. 
A)  -4.35%. 
B)  4.35%. 
C)  4.45%. 
D)  4.54%.

Question 13

Which of the following expressions best describes the concept of reducing risk through diversification?

Accepted Answer

A)  Look before you leap. 
B)  A stitch in time saves nine. 
C)  The early bird catches the worm. 
D)  Don't put all your eggs in one basket. 
A)  Look before you leap. 
B)  A stitch in time saves nine. 
C)  The early bird catches the worm. 
D)  Don't put all your eggs in one basket.

Question 14

If returns are normally distributed, the expected return plus or minus 1.64 standard deviations will cover what percentage of all possible returns?

Accepted Answer

A)  99%. 
B)  68%. 
C)  90%. 
D)  95%. 
A)  99%. 
B)  68%. 
C)  90%. 
D)  95%.

Question 15

A share bought for $20 at the start of the period and sold for $15 at the end of the period which paid dividends of $2 and $3 in the interim generated a holding period return of:

Accepted Answer

A)  -50%. 
B)  0%. 
C)  50%. 
D)  100%. 
A)  -50%. 
B)  0%. 
C)  50%. 
D)  100%.

Question 16

Given the following series of annual returns for a managed fund: 5%, 6%, 23%, -15%, 20%, -29%, 40%, -40%, 23%, the average annual return over the period was:

Accepted Answer

A)  3.67%. 
B)  6.37%. 
C)  10.11%. 
D)  13.44%. 
A)  3.67%. 
B)  6.37%. 
C)  10.11%. 
D)  13.44%.

Question 17

A risk-free rate of 5% and an expected market return of 12%, the CAPM predicts an expected return of which of the following, given a beta of 1.6:

Accepted Answer

A)  17%. 
B)  21%. 
C)  15%. 
D)  16.2%. 
A)  17%. 
B)  21%. 
C)  15%. 
D)  16.2%.

Question 18

Let's suppose you recently bought a share of BHP Billiton for $110.00. You plan to sell the share next year. You estimate that there is a 25% chance that the shares will sell for $115 at the end of 1 year, 50% chance it will sell for $120 and 25% chance it will sell for $112. Moreover, you estimate that the company will pay a $3 dividend per share under any circumstances. What is your total expected return?

Accepted Answer

A)  8.27%. 
B)  8.86%. 
C)  22.25%. 
D)  23.64%. 
A)  8.27%. 
B)  8.86%. 
C)  22.25%. 
D)  23.64%.

Question 19

If two investments have the same expected return, investors will prefer the __________ risky alternative.

Accepted Answer

A)  risk is not important. 
B)  more. 
C)  less. 
D)  none of the above. 
A)  risk is not important. 
B)  more. 
C)  less. 
D)  none of the above.

Question 20

______________ risk is the risk that is common to all businesses.

Accepted Answer

A)  systematic. 
B)  unique. 
C)  firm-specific. 
D)  unsystematic. 
A)  systematic. 
B)  unique. 
C)  firm-specific. 
D)  unsystematic.

A risk neutral investor will assess investment alternatives based on their:

Which of the following statements is true?

Covariance measures:

A risk averse person will:

If returns are normally distributed, the expected return plus or minus 1.96 standard deviations will cover what percentage of all possible returns?

Given that a stock has generated returns of 6%, 18%, -5% and 20% over the last four years, the standard deviation of stock returns was:

Which of the following statements is false?

A stock which has possible returns of 40% and -5% each with equal likelihood has an expected return of:

A beta equal to one means the stock has:

You hold a portfolio of two assets. When the return on one asset is positive, the return on the other asset is negative. We can conclude that:

The expected return on Fishermans Inn Ltd shares is 10.8 per cent. If the expected return on the market is 10 per cent and the beta for Fishermans Inn is 1.7, then what is the risk-free rate?

1 year ago, you bought a share from Bechtel Ltd for $110. Today it's worth $115. Over the year, the company did not pay any dividend. What total return did you earn on this share over the past year?

Which of the following expressions best describes the concept of reducing risk through diversification?

If returns are normally distributed, the expected return plus or minus 1.64 standard deviations will cover what percentage of all possible returns?

A share bought for $20 at the start of the period and sold for $15 at the end of the period which paid dividends of $2 and $3 in the interim generated a holding period return of:

Given the following series of annual returns for a managed fund: 5%, 6%, 23%, -15%, 20%, -29%, 40%, -40%, 23%, the average annual return over the period was:

A risk-free rate of 5% and an expected market return of 12%, the CAPM predicts an expected return of which of the following, given a beta of 1.6:

If two investments have the same expected return, investors will prefer the __________ risky alternative.

______________ risk is the risk that is common to all businesses.

Finance in Business

Time Value of Money, Financial Markets, the Reserve Bank of Australia and Interest Rates

Discounted Cash Flows and Valuation

Share Valuation and Bond Valuation

Capital Budgeting and Cash Flows

Cost of Capital and Working Capital Management

Capital Structure and Dividend Policy

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Exam 4: Risk and Return

A risk neutral investor will assess investment alternatives based on their:

Which of the following statements is true?

Covariance measures:

A risk averse person will:

If returns are normally distributed, the expected return plus or minus 1.96 standard deviations will cover what percentage of all possible returns?

Given that a stock has generated returns of 6%, 18%, -5% and 20% over the last four years, the standard deviation of stock returns was:

Which of the following statements is false?

A stock which has possible returns of 40% and -5% each with equal likelihood has an expected return of:

A beta equal to one means the stock has:

You hold a portfolio of two assets. When the return on one asset is positive, the return on the other asset is negative. We can conclude that:

The expected return on Fishermans Inn Ltd shares is 10.8 per cent. If the expected return on the market is 10 per cent and the beta for Fishermans Inn is 1.7, then what is the risk-free rate?

1 year ago, you bought a share from Bechtel Ltd for $110. Today it's worth $115. Over the year, the company did not pay any dividend. What total return did you earn on this share over the past year?

Which of the following expressions best describes the concept of reducing risk through diversification?

If returns are normally distributed, the expected return plus or minus 1.64 standard deviations will cover what percentage of all possible returns?

A share bought for $20 at the start of the period and sold for $15 at the end of the period which paid dividends of $2 and $3 in the interim generated a holding period return of:

Given the following series of annual returns for a managed fund: 5%, 6%, 23%, -15%, 20%, -29%, 40%, -40%, 23%, the average annual return over the period was:

A risk-free rate of 5% and an expected market return of 12%, the CAPM predicts an expected return of which of the following, given a beta of 1.6:

If two investments have the same expected return, investors will prefer the __________ risky alternative.

______________ risk is the risk that is common to all businesses.

Finance in Business

Time Value of Money, Financial Markets, the Reserve Bank of Australia and Interest Rates

Discounted Cash Flows and Valuation

Share Valuation and Bond Valuation

Capital Budgeting and Cash Flows

Cost of Capital and Working Capital Management

Capital Structure and Dividend Policy

Filters