Question 1

Unsystematic risk can be diversified away in a portfolio.

Accepted Answer

A) True 
 B)False  True

Question 2

The best definition of "risk" is

Accepted Answer

A) taking a chance. 
B) not being able to understand all the outcomes. 
C) uncertainty about an outcome. 
D) how large the outcome is. 
A) taking a chance. 
B) not being able to understand all the outcomes. 
C) uncertainty about an outcome. 
D) how large the outcome is. C

Question 3

We would expect the correlation coefficient between the number of days of sunshine and umbrella sales to be positive.

Accepted Answer

A) True 
 B)False  True

Question 4

The set of portfolio choice between the risk-free asset and the market portfolio is called the

Accepted Answer

A) asset line. 
B) capital market line. 
C) risk-free line. 
D) borrowing-lending line. 
A) asset line. 
B) capital market line. 
C) risk-free line. 
D) borrowing-lending line.

Question 5

In the normal distribution, approximately two-thirds of the outcomes will fall within one standard deviation of the mean.

Accepted Answer

A) True 
 B)False

Question 6

We can obtain the maximum benefits of diversification by holding approximately 25-30 assets in a portfolio.

Accepted Answer

A) True 
 B)False

Question 7

The best definition of risk averse is

Accepted Answer

A) never taking risks. 
B) only taking small risks. 
C) being compensated for taking risks. 
D) none of the above. 
A) never taking risks. 
B) only taking small risks. 
C) being compensated for taking risks. 
D) none of the above.

Question 8

To be "diversified" means to hold

Accepted Answer

A) a single asset. 
B) a number of similar assets. 
C) different assets to minimize risk. 
D) lots of assets to maximize return. 
A) a single asset. 
B) a number of similar assets. 
C) different assets to minimize risk. 
D) lots of assets to maximize return.

Question 9

Beta is a measure of:

Accepted Answer

A) total risk. 
B) unsystematic risk. 
C) systematic risk. 
D) none of the above. 
A) total risk. 
B) unsystematic risk. 
C) systematic risk. 
D) none of the above.

Question 10

Given a risk-free rate of return of 4 percent, a beta of 1.5, and a return on the market portfolio of 12 percent, what is the required rate of return using the CAPM?

Accepted Answer

A) 16% 
B) 12% 
C) 24% 
D) 8% 
A) 16% 
B) 12% 
C) 24% 
D) 8%

Question 11

The Capital Asset Pricing Model is used to predict the required return on an investment.

Accepted Answer

A) True 
 B)False

Question 12

The idea of diversification is to maintain a level of return and decrease your risk.

Accepted Answer

A) True 
 B)False

Question 13

If a stock has a beta greater than 1.0, then its expected return

Accepted Answer

A) is greater than the market portfolio. 
B) is less than the market portfolio. 
C) is the same as the market portfolio. 
D) will be 0. 
A) is greater than the market portfolio. 
B) is less than the market portfolio. 
C) is the same as the market portfolio. 
D) will be 0.

Question 14

The Security Market Line

Accepted Answer

A) shows the highest historical return earned by an asset. 
B) is calculated by taking the risk-free rate of return and multiplying it by beta. 
C) is a minimum standard of return for an asset. 
D) usually has a negative slope. 
A) shows the highest historical return earned by an asset. 
B) is calculated by taking the risk-free rate of return and multiplying it by beta. 
C) is a minimum standard of return for an asset. 
D) usually has a negative slope.

Question 15

The correlation coefficient ranges from -1.0 to +1.0.

Accepted Answer

A) True 
 B)False

Question 16

If asset x has a standard deviation of 10 percent, and the market portfolio has a standard deviation of 20 percent, and the correlation of their returns is .5, what is the beta?

Accepted Answer

A) 1.0 
B) .5 
C) .25 
D) 0 
A) 1.0 
B) .5 
C) .25 
D) 0

Question 17

Even the desire for money exhibits a declining marginal utility.

Accepted Answer

A) True 
 B)False

Question 18

The variance is the square root of standard deviation.

Accepted Answer

A) True 
 B)False

Question 19

The coefficient of variation measures the amount of risk for a given level of return.

Accepted Answer

A) True 
 B)False

Question 20

The borrowing-lending line extending from the risk-free asset through the market portfolio is called the Capital Market Line.

Accepted Answer

A) True 
 B)False

Unsystematic risk can be diversified away in a portfolio.

The best definition of "risk" is

We would expect the correlation coefficient between the number of days of sunshine and umbrella sales to be positive.

The set of portfolio choice between the risk-free asset and the market portfolio is called the

In the normal distribution, approximately two-thirds of the outcomes will fall within one standard deviation of the mean.

We can obtain the maximum benefits of diversification by holding approximately 25-30 assets in a portfolio.

The best definition of risk averse is

To be "diversified" means to hold

Beta is a measure of:

Given a risk-free rate of return of 4 percent, a beta of 1.5, and a return on the market portfolio of 12 percent, what is the required rate of return using the CAPM?

The Capital Asset Pricing Model is used to predict the required return on an investment.

The idea of diversification is to maintain a level of return and decrease your risk.

If a stock has a beta greater than 1.0, then its expected return

The Security Market Line

The correlation coefficient ranges from -1.0 to +1.0.

If asset x has a standard deviation of 10 percent, and the market portfolio has a standard deviation of 20 percent, and the correlation of their returns is .5, what is the beta?

Even the desire for money exhibits a declining marginal utility.

The variance is the square root of standard deviation.

The coefficient of variation measures the amount of risk for a given level of return.

The borrowing-lending line extending from the risk-free asset through the market portfolio is called the Capital Market Line.

Introduction

Financial Markets and Financial Instruments

Review of Financial Statements and Selected Ratios

Time Value of Money

Fixed Income Securities: Bonds and Preferred Stock

Common Stock

Cost of Capital

Introduction to Capital Budgeting and Cash Flow Estimation

Capital Budgeting Decision Methods

An Introduction to Hotel Valuation

Capital Structure

Filters

Exam 4: The Relationship Between Risk and Return

Unsystematic risk can be diversified away in a portfolio.

The best definition of "risk" is

We would expect the correlation coefficient between the number of days of sunshine and umbrella sales to be positive.

The set of portfolio choice between the risk-free asset and the market portfolio is called the

In the normal distribution, approximately two-thirds of the outcomes will fall within one standard deviation of the mean.

We can obtain the maximum benefits of diversification by holding approximately 25-30 assets in a portfolio.

The best definition of risk averse is

To be "diversified" means to hold

Beta is a measure of:

Given a risk-free rate of return of 4 percent, a beta of 1.5, and a return on the market portfolio of 12 percent, what is the required rate of return using the CAPM?

The Capital Asset Pricing Model is used to predict the required return on an investment.

The idea of diversification is to maintain a level of return and decrease your risk.

If a stock has a beta greater than 1.0, then its expected return

The Security Market Line

The correlation coefficient ranges from -1.0 to +1.0.

If asset x has a standard deviation of 10 percent, and the market portfolio has a standard deviation of 20 percent, and the correlation of their returns is .5, what is the beta?

Even the desire for money exhibits a declining marginal utility.

The variance is the square root of standard deviation.

The coefficient of variation measures the amount of risk for a given level of return.

The borrowing-lending line extending from the risk-free asset through the market portfolio is called the Capital Market Line.

Introduction

Financial Markets and Financial Instruments

Review of Financial Statements and Selected Ratios

Time Value of Money

Fixed Income Securities: Bonds and Preferred Stock

Common Stock

Cost of Capital

Introduction to Capital Budgeting and Cash Flow Estimation

Capital Budgeting Decision Methods

An Introduction to Hotel Valuation

Capital Structure

Filters