Exam 8: Risk and Return

The risk of a portfolio containing international stocks generally contains less nondiversifiable risk than one that contains only domestic stocks.

Asset Y has a beta of 1.2. The risk-free rate of return is 6 percent, while the return on the market portfolio of assets is 12 percent. The asset's market risk premium is ________.

A normal probability distribution is a symmetrical distribution whose shape resembles a bell-shaped curve.

As randomly selected securities are combined to create a portfolio, the ________ risk of the portfolio decreases until 10 to 20 securities are included. The portion of the risk eliminated is ________ risk, while that remaining is ________ risk.

Total security risk is attributable to firm-specific events, such as strikes, lawsuits, regulatory actions, or the loss of a key account.

Nico bought 100 shares of Cisco Systems stock for $30.00 per share on January 1, 2013. He received a dividend of $2.00 per share at the end of 2013 and $3.00 per share at the end of 2014. At the end of 2015, Nico collected a dividend of $4.00 per share and sold his stock for $33.00 per share. What was Nico's realized holding period return?

What is the expected return for Asset X if it has a beta of 1.5, the expected market return is 15 percent, and the expected risk-free rate is 5 percent?

If a manager requires greater return when risk increases, then he is said to be ________.

What is Nico's portfolio beta if he invests an equal amount in Asset X with a beta of 0.60, Asset Y with a beta of 1.60, and the risk-free asset?

Combining negatively correlated assets having the same expected return results in a portfolio with ________ level of expected return and ________ level of risk.

For normal probability distributions, 95 percent of the possible outcomes will lie between ±1 standard deviation from the expected return.

Which of the following is true of risk-return trade off?

For a risk-seeking manager, no change in return would be required for an increase in risk.

An approach for assessing risk that uses a number of possible return estimates to obtain a sense of the variability among outcomes is called scenario analysis.

The empirical measurement of beta can be approached by using least-squares regression analysis to find the regression coefficient (bj) in the equation for the slope of the "characteristic line."

In U.S., during the past 75 years, on an average the return on U.S. Treasury bills has exceeded the inflation rate.

Combining two negatively correlated assets to reduce risk is known as ________.

The College Copy Shop is in process of purchasing a high-tech copier. In its search, it has gathered the following information about two possible copiers A and B. (a) Compute expected rate of return for each copier. (b) Compute variance and standard deviation of rate of return for each copier. (c) Which copier should they purchase?

If a manager prefers investments with greater risk even if they have lower expected returns, then he is following a ________ strategy.

The portion of an asset's risk that is attributable to firm-specific, random causes is called ________.