Which one of the following is the minimum required rate of return on a new investment that makes that investment attractive?
a. Market risk premium
b. Expected return minus the risk-free rate
c. Market rate of return
d. Cost of capital
e. Risk-free rate
Cost of capital
Which one of the following terms best refers to the practice of investing in a variety of diverse assets as a means of reducing risk?
a. Systematic
b. Security market line
c. Diversification
d. Unsystematic
e. Capital asset pricing model
Diversification
Which one of the following describes systemic risk?
a. Risk that affects a large number of assets
b. An individual security's total risk
c. Asset specific risk
d. Diversifiable risk
e. Risk unique to a firm's management
Risk that affects a large number of assets
Which one of the following is the vertical intercept of the security market line?
a. Market risk premium
b. Individual security rate of return
c. Market rate of return
d. Individual security beta multiplied by the market risk premium
e. Risk-free rate
Risk-free rate
Which one of the following statements is correct?
a. If a risky security is correctly priced, its expected risk premium will be positive.
b. If a risky security is priced correctly, it will have an expected return equal to the risk-free rate.
c. The risk
If a risky security is correctly priced, its expected risk premium will be positive.
Which one of the following is an example of systematic risk?
a. Increase in consumption created by a reduction in personal tax rates
b. Product recall by one manufacturer
c. Closure of a major retail chain of stores
d. Major layoff by a regional manufactu
Increase in consumption created by a reduction in personal tax rates
Stock A comprises 28 percent of Susan's portfolio. Which one of the following terms applies to the 28 percent?
a. Portfolio weight
b. Portfolio variance
c. Portfolio expected return
d. Portfolio standard deviation
e. Portfolio beta
Portfolio weight
Which one of the following best describes a portfolio?
a. Risky security
b. Investment in a risk-free security
c. Security equally as risky as the overall market
d. Group of assets held by an investor
e. New issue of stock
Group of assets held by an investor
The systematic risk principle states that the expected return on a risky asset depends only on which one of the following?
a. Diversifiable risk
b. Unique risk
c. Market risk
d. Unsystematic risk
e. Asset-specific risk
Market risk