Question 1

Table 8.1  
-The portfolio with a standard deviation of zero ________. (See Table 8.1)

Accepted Answer

A)  is comprised of Assets A and B 
B)  is comprised of Assets A and C 
C)  is not possible 
D)  cannot be determined 
A)  is comprised of Assets A and B 
B)  is comprised of Assets A and C 
C)  is not possible 
D)  cannot be determined

Question 2

Risk can be assessed by means of scenario analysis and probability distributions.

Accepted Answer

A) True 
 B)False

Question 3

________ risk represents the portion of an asset's risk that can be eliminated by combining assets with less than perfect positive correlation.

Accepted Answer

A)  Diversifiable 
B)  Market 
C)  Systematic 
D)  Economic 
A)  Diversifiable 
B)  Market 
C)  Systematic 
D)  Economic

Question 4

The risk of an asset can be measured by its variance, which is found by subtracting the worst outcome from the best outcome.

Accepted Answer

A) True 
 B)False

Question 5

Nico owns 100 shares of Stock X which has a price of $12 per share and 200 shares of Stock Y which has a price of $3 per share. What is the proportion of Nico's portfolio invested in stock X?

Accepted Answer

A)  77% 
B)  67% 
C)  50% 
D)  33% 
A)  77% 
B)  67% 
C)  50% 
D)  33%

Question 6

The ________ the coefficient of variation, the ________ the risk.

Accepted Answer

A)  lower; lower 
B)  higher; lower 
C)  lower; higher 
D)  more stable; higher 
A)  lower; lower 
B)  higher; lower 
C)  lower; higher 
D)  more stable; higher

Question 7

For a risk-averse manager, required return would decrease for an increase in risk.

Accepted Answer

A) True 
 B)False

Question 8

The ________ describes the relationship between nondiversifiable risk and the required rate of return.

Accepted Answer

A)  EBIT-EPS approach to capital structure 
B)  supply-demand function for assets 
C)  capital asset pricing model 
D)  Gordon model 
A)  EBIT-EPS approach to capital structure 
B)  supply-demand function for assets 
C)  capital asset pricing model 
D)  Gordon model

Question 9

Table 8.3
Consider the following two securities X and Y.  
-Using the data from Table 8.3, what is the systematic risk for a portfolio with two-thirds of the funds invested in X and one-third invested in Y?

Accepted Answer

A)  0.88 
B)  1.17 
C)  1.33 
D)  1.67 
A)  0.88 
B)  1.17 
C)  1.33 
D)  1.67

Question 10

Relevant portion of an asset's risk attributable to market factors that affect all firms is called ________.

Accepted Answer

A)  credit risk 
B)  diversifiable risk 
C)  systematic risk 
D)  maturity risk 
A)  credit risk 
B)  diversifiable risk 
C)  systematic risk 
D)  maturity risk

Question 11

The inclusion of assets from countries with business cycles that are not highly correlated with the U.S. business cycle reduces the portfolio's responsiveness to market movements.

Accepted Answer

A) True 
 B)False

Question 12

A beta coefficient of +1 represents an asset that ________.

Accepted Answer

A)  is more responsive than the market portfolio 
B)  has the same response as the market portfolio 
C)  is less responsive than the market portfolio 
D)  is unaffected by market movement 
A)  is more responsive than the market portfolio 
B)  has the same response as the market portfolio 
C)  is less responsive than the market portfolio 
D)  is unaffected by market movement

Question 13

Which of the following is true of risk?

Accepted Answer

A)  Risk and return are inversely proportionate to each other. 
B)  Higher the risk associated with a security the lower is its return. 
C)  Risk is a measure of the uncertainty surrounding the return that an investment will earn. 
D)  Riskier investments tend to have lower returns as compared to T-bills which are risk free. 
A)  Risk and return are inversely proportionate to each other. 
B)  Higher the risk associated with a security the lower is its return. 
C)  Risk is a measure of the uncertainty surrounding the return that an investment will earn. 
D)  Riskier investments tend to have lower returns as compared to T-bills which are risk free.

Question 14

A(n) ________ portfolio maximizes return for a given level of risk, or minimizes risk for a given level of return.

Accepted Answer

A)  efficient 
B)  risk-free 
C)  risk-neutral 
D)  risk-indifferent 
A)  efficient 
B)  risk-free 
C)  risk-neutral 
D)  risk-indifferent

Question 15

Most investments decline in value when the interest rates rise and increase in value when interest rates fall.

Accepted Answer

A) True 
 B)False

Question 16

New investments must be considered in light of their impact on the risk and return of the portfolio of assets because the risk of any single proposed asset investment is not independent of other assets.

Accepted Answer

A) True 
 B)False

Question 17

The difference between the return on the market portfolio of assets and the risk-free rate of return represents the premium the investor must receive for taking the average amount of risk associated with holding the market portfolio of assets.

Accepted Answer

A) True 
 B)False

Question 18

Unsystematic risk is the relevant portion of an asset's risk attributable to market factors that affect all firms.

Accepted Answer

A) True 
 B)False

Question 19

Nico wants to invest all of his money in just two assets: the risk-free asset and the market portfolio. What is Nico's portfolio beta if he invests a quarter of his money in the market portfolio and the rest in the risk free asset?

Accepted Answer

A)  0.00 
B)  0.25 
C)  0.75 
D)  1.00 
A)  0.00 
B)  0.25 
C)  0.75 
D)  1.00

Question 20

Two assets whose returns move in the opposite directions and have a correlation coefficient of -1 ar either risk-free assets or low-risk assets.

Accepted Answer

A) True 
 B)False

Table 8.1 -The portfolio with a standard deviation of zero ________. (See Table 8.1)

Risk can be assessed by means of scenario analysis and probability distributions.

________ risk represents the portion of an asset's risk that can be eliminated by combining assets with less than perfect positive correlation.

The risk of an asset can be measured by its variance, which is found by subtracting the worst outcome from the best outcome.

Nico owns 100 shares of Stock X which has a price of $12 per share and 200 shares of Stock Y which has a price of $3 per share. What is the proportion of Nico's portfolio invested in stock X?

The the coefficient of variation, the the risk.

For a risk-averse manager, required return would decrease for an increase in risk.

The ________ describes the relationship between nondiversifiable risk and the required rate of return.

Table 8.3 Consider the following two securities X and Y. -Using the data from Table 8.3, what is the systematic risk for a portfolio with two-thirds of the funds invested in X and one-third invested in Y?

Relevant portion of an asset's risk attributable to market factors that affect all firms is called ________.

The inclusion of assets from countries with business cycles that are not highly correlated with the U.S. business cycle reduces the portfolio's responsiveness to market movements.

A beta coefficient of +1 represents an asset that ________.

Which of the following is true of risk?

A(n) ________ portfolio maximizes return for a given level of risk, or minimizes risk for a given level of return.

Most investments decline in value when the interest rates rise and increase in value when interest rates fall.

New investments must be considered in light of their impact on the risk and return of the portfolio of assets because the risk of any single proposed asset investment is not independent of other assets.

The difference between the return on the market portfolio of assets and the risk-free rate of return represents the premium the investor must receive for taking the average amount of risk associated with holding the market portfolio of assets.

Unsystematic risk is the relevant portion of an asset's risk attributable to market factors that affect all firms.

Nico wants to invest all of his money in just two assets: the risk-free asset and the market portfolio. What is Nico's portfolio beta if he invests a quarter of his money in the market portfolio and the rest in the risk free asset?

Two assets whose returns move in the opposite directions and have a correlation coefficient of -1 ar either risk-free assets or low-risk assets.

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

Table 8.1 -The portfolio with a standard deviation of zero ________. (See Table 8.1)

Risk can be assessed by means of scenario analysis and probability distributions.

________ risk represents the portion of an asset's risk that can be eliminated by combining assets with less than perfect positive correlation.

The risk of an asset can be measured by its variance, which is found by subtracting the worst outcome from the best outcome.

Nico owns 100 shares of Stock X which has a price of $12 per share and 200 shares of Stock Y which has a price of $3 per share. What is the proportion of Nico's portfolio invested in stock X?

The ________ the coefficient of variation, the ________ the risk.

For a risk-averse manager, required return would decrease for an increase in risk.

The ________ describes the relationship between nondiversifiable risk and the required rate of return.

Table 8.3 Consider the following two securities X and Y. -Using the data from Table 8.3, what is the systematic risk for a portfolio with two-thirds of the funds invested in X and one-third invested in Y?

Relevant portion of an asset's risk attributable to market factors that affect all firms is called ________.

The inclusion of assets from countries with business cycles that are not highly correlated with the U.S. business cycle reduces the portfolio's responsiveness to market movements.

A beta coefficient of +1 represents an asset that ________.

Which of the following is true of risk?

A(n) ________ portfolio maximizes return for a given level of risk, or minimizes risk for a given level of return.

Most investments decline in value when the interest rates rise and increase in value when interest rates fall.

New investments must be considered in light of their impact on the risk and return of the portfolio of assets because the risk of any single proposed asset investment is not independent of other assets.

The difference between the return on the market portfolio of assets and the risk-free rate of return represents the premium the investor must receive for taking the average amount of risk associated with holding the market portfolio of assets.

Unsystematic risk is the relevant portion of an asset's risk attributable to market factors that affect all firms.

Nico wants to invest all of his money in just two assets: the risk-free asset and the market portfolio. What is Nico's portfolio beta if he invests a quarter of his money in the market portfolio and the rest in the risk free asset?

Two assets whose returns move in the opposite directions and have a correlation coefficient of -1 ar either risk-free assets or low-risk assets.

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

The the coefficient of variation, the the risk.