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1. Which of the following is a true statement?
2. Which of the following is the average of the possible returns weighted by the likelihood of
those returns occurring?
3. Which of these is the set of probabilities for all possible occurrences?
4. Which of the following is typically considered the return on U.S. government bonds and
bills and equals the real interest plus the expected inflation premium?
5. Which of the following is the reward investors require for taking risk?
6. Which of these is the reward for taking systematic stock market risk?
7. Which of the following is a model that includes an equation that relates a stock's required
return to an appropriate risk premium?
8. Which of the following is the asset pricing theory based on a beta, a measure of market
risk?
9. In theory, which of these is a combination of securities that places the portfolio on the
efficient frontier and on a line tangent from the risk-free rate?
10. Which of the following is the use of debt to increase an investment position?
11. Which of these is the line on a graph of return and risk (standard deviation) from the risk-
free rate through the market portfolio?
12. Which of these is a measure of the sensitivity of a stock or portfolio to market risk?
13. Which of these is similar to the Capital Market Line, except that risk is characterized by
beta instead of standard deviation?
14. Which of these is the measurement of risk for a collection of stocks for an investor?
15. Which of the following is NOT a necessary condition for an efficient market?
16. Which of the following are the stocks of small companies that are priced below $1 per
share?
17. Which of these is a theory that describes the types of information that are reflected in
current stock prices?
18. Which of the following is data that includes past stock prices and volume, financial
statements, corporate news, analyst opinions, etc.?
19. Which of these refers to something that has not been released to the public, but is known
by few individuals, likely company insiders?
20. Investor enthusiasm causes an inflated bull market that drives prices too high, ending in
a dramatic collapse in prices is known as:
21. The study of the cognitive processes and biases associated with making financial and
economic decisions is known as:
22. Shares of stock issued to employees that have limitations on when they can be sold are
known as:
23. Special rights given to some employees to buy a specific number of shares of the
company stock at a fixed price during a specific period of time are known as:
24. The constant growth model assumes which of the following?
25. Expected Return Compute the expected return given these three economic states, their
likelihoods, and the potential returns:
26. Expected Return Compute the expected return given these three economic states, their
likelihoods, and the potential returns:
27. Required Return If the risk-free rate is 8 percent and the market risk premium is 2
percent, what is the required return for the market?
28. Required Return If the risk-free rate is 10 percent and the market risk premium is 4
percent, what is the required return for the market?
29. Risk Premium The annual return on the S&P 500 Index was 12.4 percent. The annual T-
bill yield during the same period was 5.7 percent. What was the market risk premium during that
year?
30. Risk Premium The annual return on the S&P 500 Index was 18.1 percent. The annual T-
bill yield during the same period was 6.2 percent. What was the market risk premium during that
year?
31. CAPM Required Return A company has a beta of 0.50. If the market return is expected
to be 12 percent and the risk-free rate is 5 percent, what is the company's required return?
32. CAPM Required Return A company has a beta of 3.25. If the market return is expected
to be 14 percent and the risk-free rate is 5.5 percent, what is the company's required return?
