Question 1

Which of the following is defined as the portion of total risk that is attributable to firm or industry factors and can be reduced through diversification?

Accepted Answer

A)  Firm specific risk 
B)  Market risk 
C)  Modern portfolio risk 
D)  Total risk 
A)  Firm specific risk 
B)  Market risk 
C)  Modern portfolio risk 
D)  Total risk

Question 2

Modern portfolio theory is:

Accepted Answer

A)  a concept and procedure for combining securities into a portfolio to minimize risk. 
B)  a concept and procedure for combining securities into a portfolio to maximize return. 
C)  a concept and procedure for combining securities into a portfolio to maximize volatility. 
D)  a concept and procedure for combining securities into a portfolio to maximize dollar return. 
A)  a concept and procedure for combining securities into a portfolio to minimize risk. 
B)  a concept and procedure for combining securities into a portfolio to maximize return. 
C)  a concept and procedure for combining securities into a portfolio to maximize volatility. 
D)  a concept and procedure for combining securities into a portfolio to maximize dollar return.

Question 3

The efficient frontier portfolios are:

Accepted Answer

A)  portfolios that risk adverse investors will select. 
B)  portfolios where all the market risk is diversified away. 
C)  portfolios where the correlation among assets is 0.0. 
D)  portfolios that dominate all others. 
A)  portfolios that risk adverse investors will select. 
B)  portfolios where all the market risk is diversified away. 
C)  portfolios where the correlation among assets is 0.0. 
D)  portfolios that dominate all others.

Question 4

Rank the following three stocks by their risk-return relationship,best to worst.Rail Haul has an average return of 8 percent and standard deviation of 10 percent.The average return and standard deviation of Idol Staff are 10 percent and 20 percent; and of Poker-R-Us are 6 percent and 15 percent.

Accepted Answer

A)  Rail Haul, Idol Staff, Poker-R-Us 
B)  Idol Staff, Rail Haul, Poker-R-Us 
C)  Poker-R-Us, Idol Staff, Rail Haul 
D)  Idol Staff, Poker-R-Us, Rail Haul 
A)  Rail Haul, Idol Staff, Poker-R-Us 
B)  Idol Staff, Rail Haul, Poker-R-Us 
C)  Poker-R-Us, Idol Staff, Rail Haul 
D)  Idol Staff, Poker-R-Us, Rail Haul

Question 5

Which of the following statements is correct?

Accepted Answer

A)  For a few firms in completely different industries, it is possible to have a correlation that approaches −2.0. 
B)  A correlation of −1.0 means that the two firms are uncorrelated or that they have no relationship. 
C)  Most common stocks have low correlation with each other since they operate in different industries. 
D)  None of the statements are correct. 
A)  For a few firms in completely different industries, it is possible to have a correlation that approaches −2.0. 
B)  A correlation of −1.0 means that the two firms are uncorrelated or that they have no relationship. 
C)  Most common stocks have low correlation with each other since they operate in different industries. 
D)  None of the statements are correct.

Question 6

Which of the following is a measurement of the co-movement between two variables that ranges between -1 and +1?

Accepted Answer

A)  Coefficient of variation 
B)  Correlation 
C)  Standard deviation 
D)  Total risk 
A)  Coefficient of variation 
B)  Correlation 
C)  Standard deviation 
D)  Total risk

Question 7

From 1950 to 2007,the average return in the stock market,as measured by the S&P 500,was 13.2 percent and a standard deviation of 17 percent.Given this information,which of the following statements is correct?

Accepted Answer

A)  With an average return this high, it is unlikely that an investor will lose money in the stock market in the next year or two. 
B)  With a standard deviation this high, it is likely that an investor will lose money in some years over a 25-year investment period. 
C)  This investment is not very good since the standard deviation is greater than the average return. 
D)  All of the statements are correct. 
A)  With an average return this high, it is unlikely that an investor will lose money in the stock market in the next year or two. 
B)  With a standard deviation this high, it is likely that an investor will lose money in some years over a 25-year investment period. 
C)  This investment is not very good since the standard deviation is greater than the average return. 
D)  All of the statements are correct.

Question 8

Which of the following is correct?

Accepted Answer

A)  Total risk is measured by the standard deviation. 
B)  There is a positive relationship between risk and return. 
C)  If you observe a high variability in a stock's returns you can infer that the stock is very risky. 
D)  All of the statements are correct. 
A)  Total risk is measured by the standard deviation. 
B)  There is a positive relationship between risk and return. 
C)  If you observe a high variability in a stock's returns you can infer that the stock is very risky. 
D)  All of the statements are correct.

Question 9

Which of the following statements is correct regarding total risk?

Accepted Answer

A)  A conglomerate will have more total risk than a firm that has one line of business. 
B)  All firms have about the same total risk because they are all exposed to the same market risk. 
C)  Total risk can be quantified by measuring the covariance between the firm and the overall market. 
D)  None of the statements are correct. 
A)  A conglomerate will have more total risk than a firm that has one line of business. 
B)  All firms have about the same total risk because they are all exposed to the same market risk. 
C)  Total risk can be quantified by measuring the covariance between the firm and the overall market. 
D)  None of the statements are correct.

Question 10

The standard deviation of the past five monthly returns for PG Company are 2.75 percent,−0.75 percent,4.15 percent,6.29 percent,and 3.84 percent.What is the standard deviation?

Accepted Answer

A)  2.309 percent 
B)  2.581 percent 
C)  3.256 percent 
D)  3.406 percent 
A)  2.309 percent 
B)  2.581 percent 
C)  3.256 percent 
D)  3.406 percent

Which of the following is defined as the portion of total risk that is attributable to firm or industry factors and can be reduced through diversification?

Modern portfolio theory is:

The efficient frontier portfolios are:

Rank the following three stocks by their risk-return relationship,best to worst.Rail Haul has an average return of 8 percent and standard deviation of 10 percent.The average return and standard deviation of Idol Staff are 10 percent and 20 percent; and of Poker-R-Us are 6 percent and 15 percent.

Which of the following statements is correct?

Which of the following is a measurement of the co-movement between two variables that ranges between -1 and +1?

From 1950 to 2007,the average return in the stock market,as measured by the S&P 500,was 13.2 percent and a standard deviation of 17 percent.Given this information,which of the following statements is correct?

Which of the following is correct?

Which of the following statements is correct regarding total risk?

The standard deviation of the past five monthly returns for PG Company are 2.75 percent,−0.75 percent,4.15 percent,6.29 percent,and 3.84 percent.What is the standard deviation?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Filters

Exam 9: Characterizing Risk and Return

Which of the following is defined as the portion of total risk that is attributable to firm or industry factors and can be reduced through diversification?

Modern portfolio theory is:

The efficient frontier portfolios are:

Rank the following three stocks by their risk-return relationship,best to worst.Rail Haul has an average return of 8 percent and standard deviation of 10 percent.The average return and standard deviation of Idol Staff are 10 percent and 20 percent; and of Poker-R-Us are 6 percent and 15 percent.

Which of the following statements is correct?

Which of the following is a measurement of the co-movement between two variables that ranges between -1 and +1?

From 1950 to 2007,the average return in the stock market,as measured by the S&P 500,was 13.2 percent and a standard deviation of 17 percent.Given this information,which of the following statements is correct?

Which of the following is correct?

Which of the following statements is correct regarding total risk?

The standard deviation of the past five monthly returns for PG Company are 2.75 percent,−0.75 percent,4.15 percent,6.29 percent,and 3.84 percent.What is the standard deviation?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Filters