Question 1

You are considering investing in Ford Motor Company.Which of the following is an example of diversifiable risk?

Accepted Answer

A) Risk resulting from the possibility of a stock market crash 
B) Risk resulting from uncertainty regarding a possible strike against Ford 
C) Risk resulting from an expected recession 
D) Risk resulting from interest rates decreasing 
A) Risk resulting from the possibility of a stock market crash 
B) Risk resulting from uncertainty regarding a possible strike against Ford 
C) Risk resulting from an expected recession 
D) Risk resulting from interest rates decreasing

Question 2

Use the following information,which describes the possible outcomes from investing in a particular asset,to answer the following question(s).
  
-What is the expected rate of return for an investment that has the following expected scenario? If there is an 18% probability of a recession,2.0% return;if there is a 65% probability of a moderate economy,9.5% return;if there is a 17% probability of a strong economy,14.2% return.

Accepted Answer

A) 11.25% 
B) 7.33% 
C) 8.95% 
D) 9.59% 
A) 11.25% 
B) 7.33% 
C) 8.95% 
D) 9.59%

Question 3

Use the following information to answer the following question(s).
  
-Firm B's risk premium is:

Accepted Answer

A) 2.66%. 
B) 4.8%. 
C) 6.3%. 
D) 8.1%. 
A) 2.66%. 
B) 4.8%. 
C) 6.3%. 
D) 8.1%.

Question 4

What is a practical measure that is used to quantify the risk of a single investment?

Accepted Answer

A) The systematic variation 
B) The Fisher effect 
C) The IRP 
D) The standard deviation 
A) The systematic variation 
B) The Fisher effect 
C) The IRP 
D) The standard deviation

Question 5

Which of the following statements is true?

Accepted Answer

A) Systematic,or market,risk can be reduced through diversification. 
B) Both systematic and unsystematic risk can be reduced through diversification. 
C) Unsystematic,or company,risk can be reduced through diversification. 
D) Neither systematic nor unsystematic risk can be reduced through diversification. 
A) Systematic,or market,risk can be reduced through diversification. 
B) Both systematic and unsystematic risk can be reduced through diversification. 
C) Unsystematic,or company,risk can be reduced through diversification. 
D) Neither systematic nor unsystematic risk can be reduced through diversification.

Question 6

The required rate of return for Firm A is:

Accepted Answer

A) 4%. 
B) 8%. 
C) 12%. 
D) 16%. 
E) Cannot be determined with information given. 
A) 4%. 
B) 8%. 
C) 12%. 
D) 16%. 
E) Cannot be determined with information given.

Question 7

You are considering a portfolio of three stocks with 30% of your money invested in company X,45% of your money invested in company Y,and 25% of your money invested in company Z.If the betas for each stock are 1.22 for company X,1.46 for company Y,and 1.03 for company Z,what is the portfolio beta?

Accepted Answer

A) 1.24 
B) 1.00 
C) 1.28 
D) 1.33 
A) 1.24 
B) 1.00 
C) 1.28 
D) 1.33

Question 8

Using the following information for McDonovan,Inc.'s stock,calculate their expected return and standard deviation.

Accepted Answer

The answer of Using the following information for McDonovan,Inc.'s stock,calculate...

Question 9

Bell Weather,Inc.has a beta of 1.25.The return on the market portfolio is 12.5%,and the risk-free rate is 5%.According to CAPM,what is the required return on this stock?

Accepted Answer

A) 20.62% 
B) 9.37% 
C) 14.37% 
D) 15.62% 
A) 20.62% 
B) 9.37% 
C) 14.37% 
D) 15.62%

Question 10

Beta is a measurement of the relationship between a security's returns and the general market's returns.

Accepted Answer

A) True 
 B)False

Question 11

You are thinking of adding one of two investments to an already well diversified portfolio.  
If you are a risk-averse investor:

Accepted Answer

A) security A is the better choice. 
B) security B is the better choice. 
C) either security would be acceptable. 
D) cannot be determined with information given. 
A) security A is the better choice. 
B) security B is the better choice. 
C) either security would be acceptable. 
D) cannot be determined with information given.

Question 12

Use the following information,which describes the possible outcomes from investing in a particular asset,to answer the following question(s).
  
-The standard deviation of returns is:

Accepted Answer

A) 8.00%. 
B) 7.63%. 
C) 4.68%. 
D) 2.76%. 
A) 8.00%. 
B) 7.63%. 
C) 4.68%. 
D) 2.76%.

Question 13

The market rewards assuming additional unsystematic risk with additional returns.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is an adequate method of achieving portfolio diversification?

Accepted Answer

A) Invest in various bonds and stocks. 
B) Invest in stocks of different industries. 
C) Invest internationally. 
D) All of the above. 
E) None of the above. 
A) Invest in various bonds and stocks. 
B) Invest in stocks of different industries. 
C) Invest internationally. 
D) All of the above. 
E) None of the above.

Question 15

The appropriate measure for risk according to the capital asset pricing model is:

Accepted Answer

A) the standard deviation of a firm's cash flows. 
B) alpha. 
C) beta. 
D) probability of correlation. 
A) the standard deviation of a firm's cash flows. 
B) alpha. 
C) beta. 
D) probability of correlation.

Question 16

The benefit from diversification is far greater when the diversification occurs across asset types.

Accepted Answer

A) True 
 B)False

Question 17

The security market line (SML)relates risk to return,for a given set of market conditions.If expected inflation increases,which of the following would most likely occur?

Accepted Answer

A) The market risk premium would increase. 
B) Beta would increase. 
C) The slope of the SML would increase. 
D) The SML line would shift up. 
A) The market risk premium would increase. 
B) Beta would increase. 
C) The slope of the SML would increase. 
D) The SML line would shift up.

Question 18

The market risk premium is measured by:

Accepted Answer

A) beta. 
B) market return less risk-free rate. 
C) T-bill rate. 
D) standard deviation. 
A) beta. 
B) market return less risk-free rate. 
C) T-bill rate. 
D) standard deviation.

Question 19

You purchased the stock of Sargent Motors at a price of $75.75 one year ago today.If you sell the stock today for $89.00,what is your holding period return?

Accepted Answer

A) 35.00% 
B) 12.50% 
C) 17.50% 
D) 25.00% 
A) 35.00% 
B) 12.50% 
C) 17.50% 
D) 25.00%

Question 20

You are considering buying some stock in Continental Grain.Which of the following is an example of nondiversifiable risk?

Accepted Answer

A) Risk resulting from a general decline in the stock market 
B) Risk resulting from a news release that several of Continental's grain silos were tainted 
C) Risk resulting from an explosion in a grain elevator owned by Continental 
D) Risk resulting from an impending lawsuit against Continental 
A) Risk resulting from a general decline in the stock market 
B) Risk resulting from a news release that several of Continental's grain silos were tainted 
C) Risk resulting from an explosion in a grain elevator owned by Continental 
D) Risk resulting from an impending lawsuit against Continental

You are considering investing in Ford Motor Company.Which of the following is an example of diversifiable risk?

Use the following information to answer the following question(s). -Firm B's risk premium is:

What is a practical measure that is used to quantify the risk of a single investment?

Which of the following statements is true?

The required rate of return for Firm A is:

You are considering a portfolio of three stocks with 30% of your money invested in company X,45% of your money invested in company Y,and 25% of your money invested in company Z.If the betas for each stock are 1.22 for company X,1.46 for company Y,and 1.03 for company Z,what is the portfolio beta?

Using the following information for McDonovan,Inc.'s stock,calculate their expected return and standard deviation.

Bell Weather,Inc.has a beta of 1.25.The return on the market portfolio is 12.5%,and the risk-free rate is 5%.According to CAPM,what is the required return on this stock?

Beta is a measurement of the relationship between a security's returns and the general market's returns.

You are thinking of adding one of two investments to an already well diversified portfolio. If you are a risk-averse investor:

Use the following information,which describes the possible outcomes from investing in a particular asset,to answer the following question(s). -The standard deviation of returns is:

The market rewards assuming additional unsystematic risk with additional returns.

Which of the following is an adequate method of achieving portfolio diversification?

The appropriate measure for risk according to the capital asset pricing model is:

The benefit from diversification is far greater when the diversification occurs across asset types.

The security market line (SML)relates risk to return,for a given set of market conditions.If expected inflation increases,which of the following would most likely occur?

The market risk premium is measured by:

You purchased the stock of Sargent Motors at a price of $75.75 one year ago today.If you sell the stock today for $89.00,what is your holding period return?

You are considering buying some stock in Continental Grain.Which of the following is an example of nondiversifiable risk?

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

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Exam 8: Risk and Return-Capital Market Theory

You are considering investing in Ford Motor Company.Which of the following is an example of diversifiable risk?

Use the following information to answer the following question(s). -Firm B's risk premium is:

What is a practical measure that is used to quantify the risk of a single investment?

Which of the following statements is true?

The required rate of return for Firm A is:

You are considering a portfolio of three stocks with 30% of your money invested in company X,45% of your money invested in company Y,and 25% of your money invested in company Z.If the betas for each stock are 1.22 for company X,1.46 for company Y,and 1.03 for company Z,what is the portfolio beta?

Using the following information for McDonovan,Inc.'s stock,calculate their expected return and standard deviation.

Bell Weather,Inc.has a beta of 1.25.The return on the market portfolio is 12.5%,and the risk-free rate is 5%.According to CAPM,what is the required return on this stock?

Beta is a measurement of the relationship between a security's returns and the general market's returns.

You are thinking of adding one of two investments to an already well diversified portfolio. If you are a risk-averse investor:

Use the following information,which describes the possible outcomes from investing in a particular asset,to answer the following question(s). -The standard deviation of returns is:

The market rewards assuming additional unsystematic risk with additional returns.

Which of the following is an adequate method of achieving portfolio diversification?

The appropriate measure for risk according to the capital asset pricing model is:

The benefit from diversification is far greater when the diversification occurs across asset types.

The security market line (SML)relates risk to return,for a given set of market conditions.If expected inflation increases,which of the following would most likely occur?

The market risk premium is measured by:

You purchased the stock of Sargent Motors at a price of $75.75 one year ago today.If you sell the stock today for $89.00,what is your holding period return?

You are considering buying some stock in Continental Grain.Which of the following is an example of nondiversifiable risk?

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters