- A news flash just appeared that caused about a dozen stocks to suddenly drop in value by 20 percent. What type of risk does this news flash best represent? Unsystematic risk
- As long as the inflation rate is positive, the real rate of return on a security will be ____ the nominal rate of return Less than
- Difference between T-Bills earning 2% and large company stocks rate of return? Risk Premium
- Generally speaking, which of the following most correspond to a wide frequency distribution? High standard deviation, large risk premium
- Generally speaking, which of the following most correspond to a wide frequency distribution High standard deviation, large risk premium
- Stacy purchased a stock last year and sold it today for $3 a share more than her purchase price. She received a total of $.75 in dividends. Which one of the following statements is correct in relation to this investment? The capital gains yield is positive.
- Standard deviation is a measure of which one of the following? Volatility
- Standard deviation measures which type of risk? Total risk
- Steve has invested in twelve different stocks that have a combined value today of $121,300.Fifteen percent of that total is invested in Wise Man Foods. The 15 percent is a measure of which one of the following? Portfolio weight
- The average compound return earned per year over a multiyear period is called the _____average return geometric
- The excess return earned by an asset that has a beta of 1.34 over that earned by a risk-freeasset is referred to as the: Risk Premium
- The excess return is computed as the: Return on a risky security minus the risk-free rate
- The expected rate of return on a stock portfolio is a weighted average where the weights are based on the: Market value of the investment in each stock.
- The expected return on a portfolio considers which of the following factors? I, II, III, and IV
- The expected return on a stock given various states of the economy is equal to the: Weighted average of the returns for each economic state
- The expected risk premium on a stock is equal to the expected return on the stock minus the: Risk-free rate
- The market risk premium is computed by: Subtracting the risk-free rate of return from the market rate of return.
- The primary purpose of portfolio diversification is to: Eliminate firm-specific risk .
- The principle of diversification tells us that: Spreading an investment across many diverse assets will eliminate some of the total risk.
- The standard deviation of a portfolio: Can be less than the standard deviation of the least risky security in the portfolio.
- To convince investors to accept greater volatility, you must Increase the risk premium.
- Unsystematic risk: can be effectively eliminated by portfolio diversification.
- What is the amount of the risk premium on a U.S. Treasury bill if the risk-free rate is 2.8 percent and the market rate of return is 8.35 percent? 0 (if held to maturity)
- Which of the following yields on a stock can be negative? Capital gains yield and total return
- Which one of the following best defines the variance of an investment’s annual returns over a number of years? The average squared difference between the actual returns and the arithmetic average return.
- Which one of the following is a risk that applies to most securities? Systematic risk
- Which one of the following is least apt to reduce the unsystematic risk of a portfolio? Reducing the number of stocks held in the portfolio
- Which one of the following is represented by the slope of the security market line? Market risk premium
- Which one of the following is the best example of a diversifiable risk? An individual firm’s sales decrease
- Which one of the following is the formula that explains the relationship between theexpected return on a security and the level of that security’s systematic risk? Capital asset pricing model
- Which one of the following measures the amount of systematic risk present in a particular risky asset relative to the systematic risk present in an average risky asset? Beta (measures systematic risk)
- Which one of the following statements is correct concerning a portfolio beta? A portfolio beta is a weighted average of the betas of the individual securities contained in the portfolio.
- Which one of the following statements is correct? Over time, the average unexpected return will be zero
- You own a stock that you think will produce a return of 11 percent in a good economy and 3percent in a poor economy. Given the probabilities of each state of the economy occurring, youanticipate that your stock will earn 6.5 percent next year. Which one of the following termsapplies to this 6.5 percent? Expected return
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