Question 1
Stocks are less riskier than either bonds or bills.
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Question 2
The total rate of return on an investment over a given period of time is calculated by .
a. dividing the asset’s cash distributions during the period, plus change in value, by its ending-of period investment value
b. dividing the asset’s cash distributions during the period, minus change in value, by its ending-of period investment value
c. dividing the asset’s cash distributions during the period, minus change in value, by its beginning-of period investment value
d . dividing the asset’s cash distributions during the period, plus change in value, by its beginning-of period investment value
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Question 3
A is a measure of relative dispersion used in comparing the risk of assets with differing expected returns.
a. standard deviation
b. coefficient of variation
c. chi square
d. mean
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Question 4
The expected value and the standard deviation of returns for asset A is . (See below.)
Asset A
12 percent and 4 percent
12.7 percent and 2.3 percent
12 percent and 2.3 percent
12.7 percent and 4 percent
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Question 5
An efficient portfolio is a portfolio that maximizes return for a given level of risk or minimizes risk for a given level of return.
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Question 6
Lower (less positive and more negative) the correlation between asset returns, .
a. lesser the potential diversification of risk
b. lower the potential profit
c. lesser the assets have to be monitored
d. greater the potential diversification of risk
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Question 7
Unsystematic risk .
a. does not change
b. can be eliminated through diversification
c. cannot be estimated
d. affects all firms in a market
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Question 8
An investment banker has recommended a $100,000 portfolio containing assets B, D, and F. $20,000 will be invested in asset B, with a beta of 1.5; $50,000 will be invested in asset D, with a beta of 2.0; and $30,000 will be invested in asset F, with a beta of 0.5. The beta of the portfolio is .
a. 1.85
b. 1.25
c. 1.45
d. 1.33
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Question 9
Changes in risk aversion, and therefore shifts in the SML, result from changing tastes and preferences of investors, which generally result from various economic, political, and social events.
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Question 10
In the capital asset pricing model, the beta coefficient is a measure of .
a. maturity risk
b. market risk
c. business-specific risk
d. unsystematic risk
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