Principles of Finance, 6e
Besley/Brigham
Principles of Finance, 6e
Besley/Brigham
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74. If investors become more averse to risk, the slope of the Security Market Line (SML) will increase.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
75. When considering stock and bond valuation models, we implicitly assume that the marginal investor is risk averse,
which means that he or she requires a higher rate of return for a given level of risk than a risk neutral individual, other
things held constant.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
76. A firm cannot change its beta through any managerial decision because betas are completely market determined.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
77. Businesses earn returns for security holders by purchasing and operating physical assets. The relevant risk of any
physical asset must be measured in terms of its effect on the risk of the firm’s securities.
a.
True
b.
False
ANSWER:
POINTS:
Principles of Finance, 6e
Besley/Brigham
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TOPICS:
87. If I know for sure that the market will have a positive return over the next year, to maximize my rate of return, I
should increase the beta of my portfolio.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
88. Because the market return represents the return on an average stock, that return carries risk with it. As a result, there
exists a market risk premium which is the amount over and above the risk-free rate that is required to compensate an
investor for assuming an average amount of risk.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
89. If you plotted the returns of a given stock against those of the market, and if you found that the slope of the regression
line was negative, the CAPM would indicate that the required rate of return on the stock should be less than the risk-free
rate for a well-diversified investor, assuming that the observed relationship is expected to continue into the future.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
90. The Y-axis intercept of the SML indicates the return on the individual asset when the realized return on an average
Principles of Finance, 6e
Besley/Brigham
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stock (beta = 1.0) is zero.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
91. Risk in financial assets only occurs when there is a chance that the actual return is less than expected. It is not
considered risk if there is a chance that the actual return is greater than expected.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
92. Investment risk can be measured by the variability of all the investment’s returns, both “good” and “bad.“
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
93. A probability distribution is a listing of all possible outcomes, or events, with a probability assigned to each outcome.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
Principles of Finance, 6e
Besley/Brigham
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ANSWER:
False
RATIONALE:
Even though the two stocks are in different industries some factors are likely to make the
returns for the two stocks to be correlated to some extent.
POINTS:
1
DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-3 – Comprehension
Business Program-6 – Reflective Thinking
DISC-FIN-08 – Risk and Return
Time Estimate-a – 5 min.
TOPICS:
Correlation Coefficient
101. Risk is the chance that the actual outcome is different from the expected outcome.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
102. The coefficient of variation gives you a measure risk per unit of return. All else equal investors would prefer a higher
coefficient of variation.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS:
TOPICS:
103. The coefficient of variation is useful in evaluating the total risk in situations where assets have different total risk and
expected returns.
a.
True
b.
False
ANSWER:
POINTS:
DIFFICULTY:
ACCREDITING STANDARDS: