17.5%
A stock that went from $40 per share at the beginning of the year to $45 at the end of the year and paid a $2 dividend provided an investor with a ____ return. (Pick the closest answer.)
beta
The slope of the linear relation between the returns on a stock and the returns on the market portfolio is called the:
expected return on securities and their systematic risk
The Security Market Line describes the relationship between the:
firm-specific risk
Unsystematic risk is also known as:
+1
The market portfolio would have a beta of:
more than 1
Assets that are more volatile than the market have a beta of:
none of the three (a, b, c)
a. current public information
b. current inside information
c. current private information
As defined in accordance with efficient markets notions, a weak-form efficient market would be a market in which asset prices reflect all:
all four (a, b, c, d) are reflected in asset prices
a. past public information
b. current public information
c. past private information
d. current private information
As defined in accordance with efficient markets notions, a strong-form efficient market would be a market in which asset prices reflect all of the following EXCEPT:
semi-strong
After controlling for risk, if someone were able to earn greater than the average returns for the market on a consistent basis using publicly available information, which form of market efficiency is violated?
strong form
If prices in a particular market fully reflect all public and private knowledge, the market is efficient in the:
0
The correlation between the return on the risk-free asset with a constant return over time and the return on a risky asset is always:
20.4%
If IBM has a beta of 1.2 when the risk-free rate is 6% and the expected return on the market portfolio is 18%, the expected return on IBM is: (Pick the closet answer.)
18.6%
If the expected return on Stock 1 is 6%, and the expected return on Stock 2 is 20%, the expected return on a two-asset portfolio that holds 10% of its funds in Stock 1 and 90% in Stock 2 is: (Pick the closet answer.)
information flows are random, both in timing and in content
In an efficient market:
all three (a, b, c) are implied in strong-form efficient market
a. no investor can consistently beat the market after adjusting for risk differences
b. stock prices reflect all public and private knowledge
c. even corporate officers and insiders cannot ea
The strong-form efficient market implies that:
it is associated with market movements which cannot be eliminated through diversification
Systematic risk is rewarded with higher returns in the market because:
less than 12%
If the expected return on the is 12%, and the beta on Consolidated Edison is , then using the Security Market Line, the expected return on Con Ed is: (Pick the closet answer.)
all three (a, b, c)
a. risk-free rate
b. systematic risk of that security
c. expected return on the market portfolio
The security market line can be used to determine the expected return on a security if we know the:
systematic risk
The Capital Asset Pricing Model (CAPM) states that the expected return on an asset depends upon its level of:
beta
If the risk-free rate, the expected return on the market portfolio, and the _____________ of a stock is known, an investor can use the security market line to determine the expected return on that stock
market portfolio
The portfolio that contains all risky assets is known as the:
13.6%
If you invest 40% of your investment in GE with an expected rate of return of 10% and the remainder in IBM with an expected rate of return of 16%, the expected return on your portfolio is: (Pick the closet answer.)
the correlation between the returns on each stock
Which of the following is not required to compute the expected return of a three-asset portfolio?
negative correlations
The benefits of diversification are greatest when asset returns have:
all three (a, b, c) would be expected to cause a quick price change
a. an unexpected announcement by a major competitor
b. higher than predicted earnings announcement
c. unexpected death of CEO
In an efficient market which of the following would not be expected to cause a quick price change in the stock of a company?
The market portfolio truly eliminates all unsystematic risk
Which of the following statements is correct?
The U.S. stock market appears to be a fairly good example of a semi-strong form efficient market.
Which of the following statements is correct?
The security market line graphically shows the expected return and systematic risk relationship.
Which of the following statements is correct?
All three statements (a, b, c) are true.
a. Diversification cannot eliminate risk that is inherent in the macroeconomy or market risk.
b. The expected rate of return on a portfolio does not depend on the correlation between the return on each
stock.
c. Al
Which of the following statements is false?
30%
If Stock A had a price of $120 at the beginning of the year, $150 at the end of the year and paid a $6 dividend during the year, what would be the annualized holding period return? Pick the closest answer.
is greater than the standard deviation for Stock B
If the variance for Stock A is greater than the variance for Stock B, then the standard deviation for Stock A:
cannot be determined by this information
If the variance for Stock A is greater than the variance for Stock B, then the coefficient of variation for Stock A:
4
If the variance in returns for Stock A is 400% and the expected return is 5%, then the coefficient of variation is: (Pick the closet answer.
cannot determine from the information given
According to the definitions given in the text, if Stock A has a standard deviation of 4% and Stock B has a standard deviation of 3% which stock is riskier?
Stock B
According to the definitions given in the text, if Stock A has a standard deviation of 4% and expected returns of 9%, and Stock B has a standard deviation of 3% and expected returns of 1%, which stock is riskier?
10.8%
A fruit company has 20% returns in periods of normal rainfall and negative 3% returns in droughts. The probability of normal rainfall is 60% and droughts 40%. What would the fruit company's expected returns be? (Pick the closet answer.)
lower than Stock B
If Stock A is considered to be of lower risk than Stock B, then Stock A should have returns that are
cannot say for certain
If the return for Stock A this year was 3% and the expected return for next year is 3%, then next year's return will actually be (Pick the closet answer.)
insider-information form
Which one of the following is not considered to be a generally recognized type of market efficiency?
correlation
A statistical concept that relates movements in one set of returns to movements in another set over time is called:
one-half
The total risk of a well-diversified portfolio of U.S. stocks appears to be about what proportion of the risk of an average one-stock portfolio?
one-third
The total risk of a well-diversified international portfolio of stocks appears to be about what proportion of the risk of an average one-stock portfolio?
systematic and unsystematic risk
Portfolio risk is comprised of:
an asset's unsystematic risk
Which of the following is not a component of the security market line equation?
none of three (a, b, c)
a. variance
b. coefficient of variation
c. beta
The square root of the standard deviation is called the:
0.316
If we assume that asset X has an expected return of 10 and a variance of 10, then its coefficient of variation is: (Pick the closest answer.)
-1.0
Maximum diversification benefit can be achieved if one were to form a portfolio of two stocks whose returns had a correlation coefficient of:
business risk
Variations in operating income over time because of variations in unit sales, price, cost margins, and/or fixed expenses are called:
none of four (a, b, c, d)
a. interest rate risk
b. exchange rate risk
c. purchasing power risk
d. financial risk
Variations in operating income over time because of variations in unit sales, price, cost margins, and/or fixed expenses are called:
exchange rate risk
The effect on revenues and expenses from variations in the value of the U.S. dollar in terms of other currencies is called:
none of four (a, b, c, d)
a. interest rate risk
b. business risk
c. purchasing power risk
d. financial risk
The effect on revenues and expenses from variations in the value of the U.S. dollar in terms of other currencies is called:
purchasing power risk
The risk caused by changes in inflation that affect revenues, expenses and profitability is called:
none of four (a, b, c, d)
a. interest rate risk
b. business risk
c. tax risk
d. financial risk
The risk caused by changes in inflation that affect revenues, expenses and profitability is called:
interest rate risk
The risk caused by variations in interest expense unrelated to sales or operating income arising from changes in the level of interest rates in the economy is called:
none of four (a, b, c, d)
a. financial risk
b. business risk
c. tax risk
d. purchasing power risk
The risk caused by variations in interest expense unrelated to sales or operating income arising from changes in the level of interest rates in the economy is called:
financial risk
The risk caused by variations in income before taxes over time because fixed interest expenses do not change when operating income rises or falls is called:
none of four (a, b, c, d)
a. interest rate risk
b. business risk
c. tax risk
d. purchasing power risk
The risk caused by variations in income before taxes over time because fixed interest expenses do not change when operating income rises or falls is called:
tax risk
Variations in a firm's tax rate and tax-related charges over time due to changing tax laws and regulations is called:
12.7% and 2.3%
assume the probability of a pessimistic, most likely and optimistic state of nature is .25, .45 and .30, and the returns associated with those states of nature are 10%, 12%, and 16% for asset X. Based on this information, the expected return and standard
lower
A lower the coefficient of variation indicates ____________ risk per unit of return
9.35%, 2.76% and 0.295 respectively
Assume the probability of a pessimistic, most likely and optimistic state of nature is .25, .55 and .20, and the returns associated with those states of nature are 5%, 10%, and 13% for asset Y. Based on this information, the expected return, standard devi
12.5%
Rico bought 100 shares of Banana Republic stock for $24.00 per share on January 1, 2010. He received a dividend of $2.00 per share at the end of 2010 and $3.00 per share at the end of 2011. At the end of 2012, Rico collected a dividend of $4.00 per share
risk averse
If a person requires greater return when risk increases, that person is said to be:
Combining negatively correlated assets having the same expected return results in a portfolio with the same level of expected return and a lower level of risk
Which of the following statements is correct?
none of four (a, b, c, d)
a. Perfectly negatively correlated series move exactly together and have a correlation coefficient of -1.0 while perfectly positively correlated series move exactly in opposite directions and have a correlation coefficient of +1.
Which of the following statements is correct?
mutual funds
investing in _____ is a way for small investors to enjoy the benefits of professional management and diversification