Question 1

Which investor attaches equal utility to each increment in wealth?

Accepted Answer

A) A risk-seeking investor. 
B) A risk-averse investor. 
C) A well diversified investor. 
D) A risk-neutral investor. 
A) A risk-seeking investor. 
B) A risk-averse investor. 
C) A well diversified investor. 
D) A risk-neutral investor.

Question 2

A risk-seeking investor attaches:

Accepted Answer

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

Question 3

Which investor has a positive attitude towards expected return and a negative attitude towards risk?

Accepted Answer

A) A risk-averse investor. 
B) A risk-neutral investor. 
C) A risk-seeking investor. 
D) A well-diversified investor. 
A) A risk-averse investor. 
B) A risk-neutral investor. 
C) A risk-seeking investor. 
D) A well-diversified investor.

Question 4

The capital market line:

Accepted Answer

A) describes the equilibrium risk-return relationship for efficient portfolios. 
B) describes the equilibrium risk-return relationship for all portfolios. 
C) describes the equilibrium risk-return relationship for riskless portfolios. 
D) describes the equilibrium risk-return relationship for risky portfolios. 
A) describes the equilibrium risk-return relationship for efficient portfolios. 
B) describes the equilibrium risk-return relationship for all portfolios. 
C) describes the equilibrium risk-return relationship for riskless portfolios. 
D) describes the equilibrium risk-return relationship for risky portfolios.

Question 5

A well-diversified portfolio should have a beta significantly less than one.

Accepted Answer

A) True 
 B)False

Question 6

According to portfolio theory,which of the following assumptions is not essential to the equilibrium pricing of risky assets?

Accepted Answer

A) All investors have the same estimate of expected returns and variance of expected returns on each asset. 
B) All investors have a common single-period time horizon for investment decisions. 
C) All assets are traded in perfect markets. 
D) All investors can sell short assets (sell an asset first and then purchase later). 
A) All investors have the same estimate of expected returns and variance of expected returns on each asset. 
B) All investors have a common single-period time horizon for investment decisions. 
C) All assets are traded in perfect markets. 
D) All investors can sell short assets (sell an asset first and then purchase later).

Question 7

The typical utility-to-wealth function for a risk-seeking investor is upward sloping.

Accepted Answer

A) True 
 B)False

Question 8

Calculate the expected return from a portfolio consisting of three securities with the following expected returns and weights:

Accepted Answer

A) 0.114% 
B) 12% 
C) 11.4% 
D) 36% 
A) 0.114% 
B) 12% 
C) 11.4% 
D) 36%

Question 9

Explain the key differences between the Capital Market Line and the Security Market Line.

Accepted Answer

The CML plots the relationship between t

Question 10

Fama and French (2002)use the dividend growth model and conclude that the market risk premium is now of the order of:

Accepted Answer

A) 2% p.a. 
B) 1% p.a. 
C) 3% p.a. 
D) 5.5% p.a. 
A) 2% p.a. 
B) 1% p.a. 
C) 3% p.a. 
D) 5.5% p.a.

Question 11

A popular measure of risk in corporate finance called the value at risk (VaR),which is defined as:

Accepted Answer

A) the best return from a high risk investment. 
B) the worst loss that is possible under normal market conditions. 
C) the worst possible loss under any market conditions. 
D) the worst return from a low risk investment. 
A) the best return from a high risk investment. 
B) the worst loss that is possible under normal market conditions. 
C) the worst possible loss under any market conditions. 
D) the worst return from a low risk investment.

Question 12

An 'efficient' portfolio is one that:

Accepted Answer

A) combines assets whose returns are not perfectly correlated. 
B) offers the highest expected return for a given level of risk. 
C) holds a proportion of all possible assets. 
D) combines many diverse assets. 
A) combines assets whose returns are not perfectly correlated. 
B) offers the highest expected return for a given level of risk. 
C) holds a proportion of all possible assets. 
D) combines many diverse assets.

Question 13

An investor would like to evaluate the performance of her portfolio using the Sharpe ratio.The past year realised return and standard deviation of returns 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 14

A simple performance benchmark is to compare the return of a well diversified portfolio of domestic shares to the S&P/ASX200 Index.

Accepted Answer

A) True 
 B)False

Question 15

Two important assumptions of portfolio theory are:

Accepted Answer

A) returns from investments are normally distributed and investors seek to minimise transaction costs. 
B) returns from investments are normally distributed and investors are risk averse. 
C) returns on a portfolio are normally distributed and investors are risk averse. 
D) the standard deviation of returns on a portfolio is normally distributed and investors are risk averse. 
A) returns from investments are normally distributed and investors seek to minimise transaction costs. 
B) returns from investments are normally distributed and investors are risk averse. 
C) returns on a portfolio are normally distributed and investors are risk averse. 
D) the standard deviation of returns on a portfolio is normally distributed and investors are risk averse.

Question 16

What is the expected return on an asset with a beta of 2.0,if the risk-free rate of interest is 5% and the expected return on the market portfolio is 10%?

Accepted Answer

A) 12.5% 
B) 20% 
C) 10% 
D) 15% 
A) 12.5% 
B) 20% 
C) 10% 
D) 15%

Which investor attaches equal utility to each increment in wealth?

A risk-seeking investor attaches:

Which investor has a positive attitude towards expected return and a negative attitude towards risk?

The capital market line:

A well-diversified portfolio should have a beta significantly less than one.

According to portfolio theory,which of the following assumptions is not essential to the equilibrium pricing of risky assets?

The typical utility-to-wealth function for a risk-seeking investor is upward sloping.

Calculate the expected return from a portfolio consisting of three securities with the following expected returns and weights:

Explain the key differences between the Capital Market Line and the Security Market Line.

Fama and French (2002)use the dividend growth model and conclude that the market risk premium is now of the order of:

A popular measure of risk in corporate finance called the value at risk (VaR),which is defined as:

An 'efficient' portfolio is one that:

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

A simple performance benchmark is to compare the return of a well diversified portfolio of domestic shares to the S&P/ASX200 Index.

Two important assumptions of portfolio theory are:

What is the expected return on an asset with a beta of 2.0,if the risk-free rate of interest is 5% and the expected return on the market portfolio is 10%?

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

Exam 7: Risk and Return

Which investor attaches equal utility to each increment in wealth?

A risk-seeking investor attaches:

Which investor has a positive attitude towards expected return and a negative attitude towards risk?

The capital market line:

A well-diversified portfolio should have a beta significantly less than one.

According to portfolio theory,which of the following assumptions is not essential to the equilibrium pricing of risky assets?

The typical utility-to-wealth function for a risk-seeking investor is upward sloping.

Calculate the expected return from a portfolio consisting of three securities with the following expected returns and weights:

Explain the key differences between the Capital Market Line and the Security Market Line.

Fama and French (2002)use the dividend growth model and conclude that the market risk premium is now of the order of:

A popular measure of risk in corporate finance called the value at risk (VaR),which is defined as:

An 'efficient' portfolio is one that:

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

A simple performance benchmark is to compare the return of a well diversified portfolio of domestic shares to the S&P/ASX200 Index.

Two important assumptions of portfolio theory are:

What is the expected return on an asset with a beta of 2.0,if the risk-free rate of interest is 5% and the expected return on the market portfolio is 10%?

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