Question 1

Interest rate risk is the chance that changes in interest rates will adversely affect the value of an investment.

Accepted Answer

A) True 
 B)False

Question 2

Combining two assets having perfectly positively correlated returns will result in the creation of a portfolio with an overall risk that ________.

Accepted Answer

A)  remains unchanged 
B)  decreases to a level below that of either asset 
C)  increases to a level above that of either asset 
D)  lies between the asset with the higher risk and the asset with the lower risk 
A)  remains unchanged 
B)  decreases to a level below that of either asset 
C)  increases to a level above that of either asset 
D)  lies between the asset with the higher risk and the asset with the lower risk

Question 3

Given the following expected returns and standard deviations of assets B, M, Q, and D, which asset should the prudent financial manager select?

Accepted Answer

A)  Asset B 
B)  Asset M 
C)  Asset Q 
D)  Asset D 
A)  Asset B 
B)  Asset M 
C)  Asset Q 
D)  Asset D

Question 4

Lower the coefficient of variation, the greater the risk and therefore the higher the expected return.

Accepted Answer

A) True 
 B)False

Question 5

A normal probability distribution is an asymmetrical distribution whose shape resembles a pyramid.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is true of risk aversion?

Accepted Answer

A)  Greater risk aversion results in lower required returns for each level of risk. 
B)  A reduction in risk aversion causes the required return for each level of risk to increase. 
C)  In general, widely shared expectations of hard times ahead tend to cause investors to become less risk averse. 
D)  Changes in risk aversion, and therefore shifts in the SML, result from changing preferences of investors. 
A)  Greater risk aversion results in lower required returns for each level of risk. 
B)  A reduction in risk aversion causes the required return for each level of risk to increase. 
C)  In general, widely shared expectations of hard times ahead tend to cause investors to become less risk averse. 
D)  Changes in risk aversion, and therefore shifts in the SML, result from changing preferences of investors.

Question 7

The required return on an asset is an increasing function of its nondiversifiable risk.

Accepted Answer

A) True 
 B)False

Question 8

Strikes, lawsuits, regulatory actions, or the loss of a key account are all examples of ________.

Accepted Answer

A)  diversifiable risk 
B)  market risk 
C)  economic risk 
D)  systematic risk 
A)  diversifiable risk 
B)  market risk 
C)  economic risk 
D)  systematic risk

Interest rate risk is the chance that changes in interest rates will adversely affect the value of an investment.

Combining two assets having perfectly positively correlated returns will result in the creation of a portfolio with an overall risk that ________.

Given the following expected returns and standard deviations of assets B, M, Q, and D, which asset should the prudent financial manager select?

Lower the coefficient of variation, the greater the risk and therefore the higher the expected return.

A normal probability distribution is an asymmetrical distribution whose shape resembles a pyramid.

Which of the following is true of risk aversion?

The required return on an asset is an increasing function of its nondiversifiable risk.

Strikes, lawsuits, regulatory actions, or the loss of a key account are all examples of ________.

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Cash Flow and Financial Planning

Time Value of Money

Interest Rates and Bond Valuation

Stock Valuation

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Current Liabilities Management

Hybrid and Derivative Securities

Mergers, Lbos, Divestitures, and Business Failure

International Managerial Finance

Filters

Exam 8: Risk and Return

Interest rate risk is the chance that changes in interest rates will adversely affect the value of an investment.

Combining two assets having perfectly positively correlated returns will result in the creation of a portfolio with an overall risk that ________.

Given the following expected returns and standard deviations of assets B, M, Q, and D, which asset should the prudent financial manager select?

Lower the coefficient of variation, the greater the risk and therefore the higher the expected return.

A normal probability distribution is an asymmetrical distribution whose shape resembles a pyramid.

Which of the following is true of risk aversion?

The required return on an asset is an increasing function of its nondiversifiable risk.

Strikes, lawsuits, regulatory actions, or the loss of a key account are all examples of ________.

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Cash Flow and Financial Planning

Time Value of Money

Interest Rates and Bond Valuation

Stock Valuation

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Current Liabilities Management

Hybrid and Derivative Securities

Mergers, Lbos, Divestitures, and Business Failure

International Managerial Finance

Filters