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Chapter 17 - Financial Economics
58. Risk in finance means:
59. A strategy that attempts to reduce the overall risk to the entire portfolio by investing in a
large number of investments is called:
60. An investor wants to invest in the oil industry, but does not know which major companies
will produce the greatest return. As a result, the investor buys shares in several oil companies.
By buying several companies to reduce risk, the investor is seeking to lower:
Chapter 17 - Financial Economics
61. The type of risk that pushes the returns from all investment in the same direction at the
same time is:
62. Investors face the risk that the economy could go into another recession. This risk is:
63. Investors evaluate investments by estimating their average expected rates of return, which
give higher weights to:
Chapter 17 - Financial Economics
64. Which of the following is the best description of the relationship between risk and average
expected returns?
65. Which of the following is the best description of the relationship between asset prices and
average expected returns?
66. Diversification in one's investments reduces:
Chapter 17 - Financial Economics
67. If an investor owns a well-diversified portfolio, then:
68. What concept would be most consistent with the observation that people tend to be
impatient and typically prefer to consume things in the present rather than the future?
69. If an investment is 70 percent likely to return 10 percent per year and 30 percent likely to
return 15 percent a year, then its average expected rate of return is:
Chapter 17 - Financial Economics
70. If an investment is 80 percent likely to gain 40 percent but also 20 percent likely to lose
10 percent, then its average expected rate of return is:
71. If an investment is equally likely to return 10 percent per year or 15 percent a year, then
its average expected rate of return is:
72. The so-called market portfolio used as a benchmark in financial economics is:
Chapter 17 - Financial Economics
73. What does beta measure?
74. An asset with a beta of 0.5 has:
75. One asset has a beta of 2.0 and another asset has a beta of 1.0. The differences in beta
mean that the asset with a beta of 2.0 has:
Chapter 17 - Financial Economics
76. The market portfolio would have a beta of:
77. The so-called risk-free rate essentially measures the investors':
78. What is considered to be the best measure of the risk-free interest rate?
Chapter 17 - Financial Economics
79. The expected rate of return for an investment is:
80. The Security Market line (SML) shows how the average expected rates of return on assets
vary with:
81. The vertical intercept of the Security Market Line (SML) shows the:
Chapter 17 - Financial Economics
82. The Security Market Line (SML) is upward-sloping, indicating that the:
83. If an asset has a risk-return combination that is below the Security Market Line (SML),
then it indicates that the asset's:
84. If an asset has a risk-return combination that is above the Security Market Line (SML),
then arbitrage will make that asset's:
Chapter 17 - Financial Economics
85. Refer to the graph. The bracket A represents the:
86. Refer to the graph. The bracket B represents the:
Chapter 17 - Financial Economics
87. Refer to the graph. The point Y represents the:
88. Refer to the graph. The average expected rate of return for an asset with a beta equal to X
would be:
89. Refer to the graph. The risk premium for an asset with a beta equal to X would be:
