Question 1

The principle of diversification tells us that

Accepted Answer

A) concentrating a portfolio in three companies within the same industry will greatly reduce the overall risk of a portfolio. 
B) concentrating a portfolio in two or three large stocks will eliminate all of a portfolio's risk. 
C) spreading an investment across many diverse assets will eliminate all of a portfolio's risk. 
D) spreading an investment across many diverse assets will lower a portfolio's level of risk. 
E) spreading an investment across five diverse companies will not lower a portfolio's level of risk. 
A) concentrating a portfolio in three companies within the same industry will greatly reduce the overall risk of a portfolio. 
B) concentrating a portfolio in two or three large stocks will eliminate all of a portfolio's risk. 
C) spreading an investment across many diverse assets will eliminate all of a portfolio's risk. 
D) spreading an investment across many diverse assets will lower a portfolio's level of risk. 
E) spreading an investment across five diverse companies will not lower a portfolio's level of risk.

Question 2

Angelo anticipates earning a rate of return of 11.4 percent on his portfolio next year.The 11.4 percent is referred to as the

Accepted Answer

A) expected return. 
B) future return. 
C) holding period return. 
D) actual return. 
E) average return. 
A) expected return. 
B) future return. 
C) holding period return. 
D) actual return. 
E) average return.

Question 3

The market has an expected rate of return of 10.29 percent.The long-term government bond is expected to yield 4.73 percent,and the U.S.Treasury bill is expected to yield 3.21 percent.The inflation rate is 3.09 percent.What is the market risk premium?

Accepted Answer

A) 7)20% 
B) 9)73% 
C) 6)78% 
D) 8)33% 
E) 7)08% 
A) 7)20% 
B) 9)73% 
C) 6)78% 
D) 8)33% 
E) 7)08%

Question 4

You have a two-stock portfolio with an expected return of 11.7 percent.Stock A has an expected return of 13.8 percent while Stock B is expected to return 9.2 percent.What is the portfolio weight of Stock A?

Accepted Answer

A) 59.09% 
B) 57.82% 
C) 63.33% 
D) 54.35% 
E) 60.33% 
A) 59.09% 
B) 57.82% 
C) 63.33% 
D) 54.35% 
E) 60.33%

Question 5

A negative covariance between the returns of Stock A and Stock B indicates that

Accepted Answer

A) market prices of Stock A and Stock B move in tandem when their returns are declining. 
B) the return on one stock will exceed that stock's average return when the second stock has a return that is less than its average. 
C) a portfolio investing equally in Stocks A and B will have a negative expected rate of return. 
D) both Stock A and Stock B have negative rates of return for the period. 
E) one stock has a negative rate of return while the other stock has a positive rate of return for the period. 
A) market prices of Stock A and Stock B move in tandem when their returns are declining. 
B) the return on one stock will exceed that stock's average return when the second stock has a return that is less than its average. 
C) a portfolio investing equally in Stocks A and B will have a negative expected rate of return. 
D) both Stock A and Stock B have negative rates of return for the period. 
E) one stock has a negative rate of return while the other stock has a positive rate of return for the period.

Question 6

A portfolio is expected to return 18 percent in a booming economy,13 percent in a normal economy,and lose 11 percent if the economy falls into a recession.The probability of a boom is 3 percent while the probability of a recession is 25 percent.What is the overall portfolio expected return?

Accepted Answer

A) 8)40% 
B) 6)83% 
C) 7)15% 
D) 6)05% 
E) 2)81% 
A) 8)40% 
B) 6)83% 
C) 7)15% 
D) 6)05% 
E) 2)81%

Question 7

You plotted the monthly rate of return for two securities against time for the past 48 months.If the pattern of the movements of these two sets of returns rose and fell together the majority,but not all,of the time,then the securities have

Accepted Answer

A) no correlation at all. 
B) a weak negative correlation. 
C) a strong negative correlation. 
D) a strong positive correlation. 
E) a perfect positive correlation. 
A) no correlation at all. 
B) a weak negative correlation. 
C) a strong negative correlation. 
D) a strong positive correlation. 
E) a perfect positive correlation.

Question 8

A portfolio is equally weighted.Stock D has a standard deviation of 11.7,percent and Stock E has a standard deviation of 5.9 percent.The securities have a covariance of 0.0254.What is the portfolio variance?

Accepted Answer

A) 0)012209 
B) 0)009006 
C) 0)010549 
D) 0)008590 
E) 0)016993 
A) 0)012209 
B) 0)009006 
C) 0)010549 
D) 0)008590 
E) 0)016993

Question 9

Systematic risk is measured by

Accepted Answer

A) beta. 
B) the arithmetic average. 
C) the geometric average. 
D) covariance. 
E) standard deviation. 
A) beta. 
B) the arithmetic average. 
C) the geometric average. 
D) covariance. 
E) standard deviation.

The principle of diversification tells us that

Angelo anticipates earning a rate of return of 11.4 percent on his portfolio next year.The 11.4 percent is referred to as the

The market has an expected rate of return of 10.29 percent.The long-term government bond is expected to yield 4.73 percent,and the U.S.Treasury bill is expected to yield 3.21 percent.The inflation rate is 3.09 percent.What is the market risk premium?

You have a two-stock portfolio with an expected return of 11.7 percent.Stock A has an expected return of 13.8 percent while Stock B is expected to return 9.2 percent.What is the portfolio weight of Stock A?

A negative covariance between the returns of Stock A and Stock B indicates that

A portfolio is expected to return 18 percent in a booming economy,13 percent in a normal economy,and lose 11 percent if the economy falls into a recession.The probability of a boom is 3 percent while the probability of a recession is 25 percent.What is the overall portfolio expected return?

You plotted the monthly rate of return for two securities against time for the past 48 months.If the pattern of the movements of these two sets of returns rose and fell together the majority,but not all,of the time,then the securities have

A portfolio is equally weighted.Stock D has a standard deviation of 11.7,percent and Stock E has a standard deviation of 5.9 percent.The securities have a covariance of 0.0254.What is the portfolio variance?

Systematic risk is measured by

Introduction to Corporate Finance

Financial Statements AMCQ Cash Flow

Financial Statements Analysis Amcq Financial Models

Discounted Cash Flow Valuation

Interest Rates AMCQ Bomcq Valuation

Stock Valuation

Net Present Value AMCQ Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, AMCQ Capital Budgeting

Risk Amcq Return: Lessons From Market History

Risk, cost of Capital, AMCQ Valuation

Efficient Capital Markets Amcq Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividemcqs AMCQ Other Payouts

Options Amcq Corporate Finance

Short-Term Finance Amcq Planning

Raising Capital

International Corporate Finance

Mergers Amcq Acquisitions Web Only

Filters

Exam 11: Return Amcq Risk: the Capital Asset Pricing Model Capm

The principle of diversification tells us that

Angelo anticipates earning a rate of return of 11.4 percent on his portfolio next year.The 11.4 percent is referred to as the

The market has an expected rate of return of 10.29 percent.The long-term government bond is expected to yield 4.73 percent,and the U.S.Treasury bill is expected to yield 3.21 percent.The inflation rate is 3.09 percent.What is the market risk premium?

You have a two-stock portfolio with an expected return of 11.7 percent.Stock A has an expected return of 13.8 percent while Stock B is expected to return 9.2 percent.What is the portfolio weight of Stock A?

A negative covariance between the returns of Stock A and Stock B indicates that

A portfolio is expected to return 18 percent in a booming economy,13 percent in a normal economy,and lose 11 percent if the economy falls into a recession.The probability of a boom is 3 percent while the probability of a recession is 25 percent.What is the overall portfolio expected return?

You plotted the monthly rate of return for two securities against time for the past 48 months.If the pattern of the movements of these two sets of returns rose and fell together the majority,but not all,of the time,then the securities have

A portfolio is equally weighted.Stock D has a standard deviation of 11.7,percent and Stock E has a standard deviation of 5.9 percent.The securities have a covariance of 0.0254.What is the portfolio variance?

Systematic risk is measured by

Introduction to Corporate Finance

Financial Statements AMCQ Cash Flow

Financial Statements Analysis Amcq Financial Models

Discounted Cash Flow Valuation

Interest Rates AMCQ Bomcq Valuation

Stock Valuation

Net Present Value AMCQ Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, AMCQ Capital Budgeting

Risk Amcq Return: Lessons From Market History

Risk, cost of Capital, AMCQ Valuation

Efficient Capital Markets Amcq Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividemcqs AMCQ Other Payouts

Options Amcq Corporate Finance

Short-Term Finance Amcq Planning

Raising Capital

International Corporate Finance

Mergers Amcq Acquisitions Web Only

Filters