Question 1

Where two securities are perfectly positively correlated,there is no reduction in unsystematic risk through diversification.

Accepted Answer

A) True 
 B)False  True

Question 2

The variance of a portfolio does not depend on:

Accepted Answer

A) the proportion of the current market value of the portfolio constituted by each security. 
B) the variance of the possible returns of each security. 
C) the total market value of the portfolio. 
D) the correlation between possible returns on the securities held in the portfolio. 
A) the proportion of the current market value of the portfolio constituted by each security. 
B) the variance of the possible returns of each security. 
C) the total market value of the portfolio. 
D) the correlation between possible returns on the securities held in the portfolio. C

Question 3

A risk-neutral investor attaches:

Accepted Answer

A) increasing utility to each increment in wealth. 
B) decreasing utility to each increment in wealth. 
C) decreasing utility to each increment in risk. 
D) equal utility to each increment in wealth. 
A) increasing utility to each increment in wealth. 
B) decreasing utility to each increment in wealth. 
C) decreasing utility to each increment in risk. 
D) equal utility to each increment in wealth. D

Question 4

An investor would like to evaluate the performance of her portfolio using the Treynor ratio.The past year realised return and systematic risk of the portfolio,the benchmark portfolio,given by the S&P/ASX share price index,and government bonds are:  
Has the portfolio:

Accepted Answer

A) underperformed relative to the benchmark. 
B) outperformed the market benchmark on a risk-adjusted basis. 
C) underperformed the market benchmark on a risk-adjusted basis. 
D) outperformed the Government Bonds. 
A) underperformed relative to the benchmark. 
B) outperformed the market benchmark on a risk-adjusted basis. 
C) underperformed the market benchmark on a risk-adjusted basis. 
D) outperformed the Government Bonds.

Question 5

What are the two components of expected return in the CAPM?

Accepted Answer

The first is the risk free rat

Question 6

Beta is a measure of the extent to which:

Accepted Answer

A) the returns on the stock market as a whole change over time. 
B) a security's risk can be eliminated by proper diversification. 
C) the returns on a given stock move with the stock market. 
D) a security's risk can be eliminated by random diversification. 
A) the returns on the stock market as a whole change over time. 
B) a security's risk can be eliminated by proper diversification. 
C) the returns on a given stock move with the stock market. 
D) a security's risk can be eliminated by random diversification.

Question 7

In order to benchmark the performance of a portfolio it is important to compare it to a portfolio of ___________________.

Accepted Answer

The answer of In order to benchmark the performance of...

Question 8

Claus and Thomas (2001)use forecasts by security analysts and conclude that the market risk premium is approximately:

Accepted Answer

A) 2% p.a. 
B) 3% p.a. 
C) 4% p.a. 
D) 1% p.a. 
A) 2% p.a. 
B) 3% p.a. 
C) 4% p.a. 
D) 1% p.a.

Question 9

Which of the following statements is true?

Accepted Answer

A) Two assets that are perfectly negatively correlated can produce a portfolio with zero variance. 
B) Adding an asset to a portfolio by random selection will reduce the risk of a portfolio. 
C) Adding a riskless security to a portfolio will increase its overall risk. 
D) The amount of risk reduction that can be achieved by adding a new security to an existing portfolio increases as the correlation between the expected returns of the new security and the expected returns on the existing portfolio increases. 
A) Two assets that are perfectly negatively correlated can produce a portfolio with zero variance. 
B) Adding an asset to a portfolio by random selection will reduce the risk of a portfolio. 
C) Adding a riskless security to a portfolio will increase its overall risk. 
D) The amount of risk reduction that can be achieved by adding a new security to an existing portfolio increases as the correlation between the expected returns of the new security and the expected returns on the existing portfolio increases.

Question 10

What would be the shape of the probability distribution for completely certain returns?

Accepted Answer

A) A vertical line. 
B) Bell shaped but with a high peak. 
C) A horizontal line. 
D) Two or more vertical lines. 
A) A vertical line. 
B) Bell shaped but with a high peak. 
C) A horizontal line. 
D) Two or more vertical lines.

Question 11

The Fama-French three-factor model of expected returns indicates a linear relationship according to the size of the firm and book-to-market ratios.

Accepted Answer

A) True 
 B)False

Question 12

A risk __________ investor will make their investment decision purely on the return generated by a project.

Accepted Answer

The answer of A risk __________ investor will make their...

Question 13

What would be the shape of the probability distribution for completely uncertain returns?

Accepted Answer

A) Horizontal line above the x axis. 
B) Vertical line. 
C) Horizontal line along the x axis. 
D) Bell-shaped but very flat. 
A) Horizontal line above the x axis. 
B) Vertical line. 
C) Horizontal line along the x axis. 
D) Bell-shaped but very flat.

Question 14

Suppose that the returns on an investment are normally distributed with an expected return of 10% and standard deviation of 5%.What is the likelihood of making a positive return? (Hint: the area under a curve for 1 std dev is 34.13%,2 std dev is 47.73% and 3 std dev is 49.87%. )

Accepted Answer

A) 84.13% 
B) 2.27% 
C) 97.73% 
D) 15.87% 
A) 84.13% 
B) 2.27% 
C) 97.73% 
D) 15.87%

Question 15

The Fama-French three-factor model of asset pricing attempted to improve the CAPM by integrating variables that measured a firm's size and its ___________________.

Accepted Answer

book-to-ma

Question 16

Which of the following is NOT a portfolio performance measure?

Accepted Answer

A) Jensen's beta. 
B) The Sharpe ratio. 
C) The Treynor Ratio. 
D) Jenson's alpha. 
A) Jensen's beta. 
B) The Sharpe ratio. 
C) The Treynor Ratio. 
D) Jenson's alpha.

Question 17

The straight line passing through the risk-free rate of return on the vertical axis and the expected return-standard deviation point for the market portfolio is known as the:

Accepted Answer

A) security market line. 
B) capital market line. 
C) characteristic line. 
D) efficient frontier. 
A) security market line. 
B) capital market line. 
C) characteristic line. 
D) efficient frontier.

Question 18

The _______________ is a curve that includes all portfolios with the highest return for a given level of risk.

Accepted Answer

The answer of The _______________ is a curve that includes...

Question 19

The Capital Asset Pricing Model (CAPM)assumes that all securities are priced according to their unsystematic risk.

Accepted Answer

A) True 
 B)False

Question 20

If an asset has a beta of 0.8,this indicates that the expected return of the asset should be greater than the market portfolio.

Accepted Answer

A) True 
 B)False

Exam 7: Risk and Return

Where two securities are perfectly positively correlated,there is no reduction in unsystematic risk through diversification.

The variance of a portfolio does not depend on:

A risk-neutral investor attaches:

An investor would like to evaluate the performance of her portfolio using the Treynor ratio.The past year realised return and systematic risk of the portfolio,the benchmark portfolio,given by the S&P/ASX share price index,and government bonds are: Has the portfolio:

What are the two components of expected return in the CAPM?

Beta is a measure of the extent to which:

In order to benchmark the performance of a portfolio it is important to compare it to a portfolio of ___________________.

Claus and Thomas (2001)use forecasts by security analysts and conclude that the market risk premium is approximately:

Which of the following statements is true?

What would be the shape of the probability distribution for completely certain returns?

The Fama-French three-factor model of expected returns indicates a linear relationship according to the size of the firm and book-to-market ratios.

A risk __________ investor will make their investment decision purely on the return generated by a project.

What would be the shape of the probability distribution for completely uncertain returns?

Suppose that the returns on an investment are normally distributed with an expected return of 10% and standard deviation of 5%.What is the likelihood of making a positive return? (Hint: the area under a curve for 1 std dev is 34.13%,2 std dev is 47.73% and 3 std dev is 49.87%. )

The Fama-French three-factor model of asset pricing attempted to improve the CAPM by integrating variables that measured a firm's size and its ___________________.

Which of the following is NOT a portfolio performance measure?

The straight line passing through the risk-free rate of return on the vertical axis and the expected return-standard deviation point for the market portfolio is known as the:

The _______________ is a curve that includes all portfolios with the highest return for a given level of risk.

The Capital Asset Pricing Model (CAPM)assumes that all securities are priced according to their unsystematic risk.

If an asset has a beta of 0.8,this indicates that the expected return of the asset should be greater than the market portfolio.

Introduction

Consumption, Investment and the Capital Market

The Time Value of Money: An Introduction to Financial Mathematics

Applying the Time Value of Money to Security Valuation

Project Evaluation: Principles and Methods

The Application of Project Evaluation Methods

The Capital Market

Sources of Finance: Equity

Sources of Finance: Debt

Payout Policy

Principles of Capital Structure

Capital Structure Decisions

The Cost of Capital and Taxation Issues in Project Evaluation

Leasing and Other Equipment Finance

Capital Market Efficiency

Futures Contracts

Options and Contingent Claims

Analysis of Takeovers

International Financial Management

Management of Short-Term Assets: Inventory

Management of Short-Term Assets: Liquid Assets and Accounts Receivable

Filters