a.
systematic risk
b.
unsystematic risk
c.
beta risk
d.
total risk
44. Which type of risk affects many different securities?
a.
return risk
b.
variance risk
c.
unsystematic risk
d.
systematic risk
45. Which type of risk affects just a few securities at a time?
a.
return risk
b.
variance risk
c.
unsystematic risk
d.
systematic risk
46. A standardized measure of risk is:
a.
alpha
b.
beta
c.
gamma
d.
omega
47. Which type of firm would most likely have the greatest systematic risk?
a.
A grocery store chain
b.
A electric company
c.
A telephone company
d.
A vibrating chair manufacturer
48. The beta of the risk-free asset is:
a.
-1.0
b.
0.0
c.
0.5
d.
1.0
49. Given Exhibit 7-3, what is the weight of Security 2?
a.
20%
b.
40%
c.
60%
d.
80%
50. Given Exhibit 7-3, what is the expected return on the portfolio?
a.
14.1%
b.
15.0%
c.
16.3%
d.
17.9%
NARRBEGIN: Exhibit 7-4
Exhibit 7-4
Security
Weight
Expected Return
1
7%
2
35%
9%
3
40%
NARREND
51. Given Exhibit 7-4, what is the weight of Security 1?
a.
25%
b.
35%
c.
45%
d.
55%
1
30%
2
3
10%
52. Given Exhibit 7-4, if the expected return on the portfolio is 9.7%, what is the expected return for
Security 3?
a.
10%
b.
11%
c.
12%
d.
13%
NARRBEGIN: Exhibit 7-5
Exhibit 7-5
Security
$ Invested
Expected Return
1
$5,000
7%
2
$7,000
9%
3
$9,000
12%
NARREND
53. Given Exhibit 7-5, what is the weight of Security 1?
a.
42.9%
b.
33.3%
c.
23.8%
d.
Cannot be determined with the data given
54. Given Exhibit 7-5, what is the weight of Security 2?
a.
42.9%
b.
33.3%
c.
23.8%
d.
Cannot be determined with the data given
55. Given Exhibit 7-5, what is the weight of Security 3?
a.
42.9%
b.
33.3%
c.
23.8%
d.
Cannot be determined with the data given
56. Given Exhibit 7-5, what is the expected return on the portfolio?
a.
9.81%
b.
9.00%
c.
17.31%
d.
Cannot be determined with the data given
57. If you believed a stock was going to fall in price, a strategy to profit from the stock decline is known
as:
a.
buying long.
b.
buying short.
c.
selling long.
d.
selling short.
NARRBEGIN: Exhibit 7-6
Exhibit 7-6
Security
$ Invested
Beta
1
$9,000
0.7
2
$5,000
0.9
3
$8,000
1.2
NARREND
58. Given Exhibit 7-6, what is the portfolio beta?
a.
0.4987
b.
0.9273
c.
0.3791
d.
1.2367
NARRBEGIN: Exhibit 7-7
Exhibit 7-7
Security
$ Invested
Beta
59. Given Exhibit 7-7, what is the portfolio beta?
a.
0.4987
b.
0.9273
c.
0.3791
d.
1.2667
60. The country with the highest level of systematic risk is:
a.
Russia
b.
Poland
c.
Taiwan
d.
USA
61. The difference between the return on the market portfolio and the risk-free rate is known as the:
a.
total return.
b.
systematic premium.
c.
unsystematic return.
d.
market risk premium.
62. An investor has $10,000 invested in Treasury securities and $15,000 invested in stock UVW. UVW
has a beta of 1.2. What is the beta of the portfolio?
a.
0.00
b.
0.72
c.
1.20
d.
1.60
63. The slope of the security market line is:
a.
E(Rm) – Rf
b.
1/(E(Rm) – Rf)
c.
Rf – E(Rm)
d.
Rf
64. The intercept of the security market line is:
a.
E(Rm) – Rf
b.
1/(E(Rm) – Rf)
c.
Rf – E(Rm)
d.
Rf
65. The slope of the security market line is:
a.
the return on the market.
b.
beta.
c.
the market risk premium.
d.
the risk-free rate.
66. The formula for the Capital Asset Pricing Model is:
a.
E(Ri) = Rf + bi(E(Rm) – Rf)
b.
E(Ri) = Rf + biE(Rm)
c.
E(Ri) =bi(E(Rm) – Rf)
d.
E(Ri) + Rf = bi(E(Rm) – Rf)
67. Security I has a beta of 1.3, the risk-free rate is 4%, and the expected return on the market is 11%.
What is the expected return for Security I?
a.
15.0%
b.
18.3%
c.
14.6%
d.
13.1%
68. Security I has a beta of 1.3, the risk-free rate is 4%, and the expected market risk premium is 11%.
What is the expected return for Security I?
a.
15.0%
b.
18.3%
c.
14.6%
d.
13.1%
69. The idea that asset prices fully reflect all available information is known as the:
a.
fair price hypothesis.
b.
efficient market hypothesis.
c.
full information hypothesis.
d.
full price hypothesis.
70. The hypothesis that states that it is nearly impossible to predict exactly when stocks will do well
relative to bonds is known as the:
a.
fair price hypothesis.
b.
efficient market hypothesis.
c.
full information hypothesis.
d.
full price hypothesis.
71. A mutual fund that adopts a passive management style is called:
a.
an index fund.
b.
a research fund.
c.
an active fund.
d.
a technology fund.
72. What type of mutual fund managers do extensive analysis to identify mispriced stocks?
a.
passive
b.
index
c.
active
d.
short
73. A buy-and-hold strategy:
a.
typically earns higher returns, after expenses, than an active stock picking strategy.
b.
always earns the lowest returns.
c.
always have the lowest risk.
d.
typically outperforms most market indexes.
LOC: understand the investment processes
74. Active managers:
a.
generate lower expenses for their shareholders than passive managers.
b.
trade more frequently than passive managers
c.
always use trading rules to decide when to buy and sell stocks.
d.
all of the above.
75. Modern financial markets are:
a.
competitive.
b.
transparent.
c.
efficient.
d.
all of the above.
76. Which of the following statements is true?
a.
Because expected returns on stocks exceeds expected returns on bonds, stocks should
actually outperform bonds in any given year.
b.
Because expected returns on stocks exceeds expected returns on bonds, it is more
reasonable to expect that stocks will outperform bonds in any given year.
c.
Expected return is the return one will actually receive.
d.
Both (a) and (c)
e.
All of the above statements are true.
77. Which of the following approaches to estimating an asset’s expected return assumes that the future and
the past share much in common?
a.
Historical
b.
Probabilistic
c.
Risk-based
d.
all of the above
78. Portfolio weights must sum to ____.
a.
1
b.
0.99
c.
0
d.
Portfolio weights do not need to sum to a particular value.
79. When investors take a short position in one asset to invest more in another asset, they are using:
a.
capital budgeting
b.
corporate leverage
c.
financial leverage
d.
none of the above
80. A fund that attempts to mimic the S&P 500
a.
An efficient portfolio
b.
A passive portfolio
c.
An active portfolio
d.
An index portfolio
81. A fund that attempts to researches and finds undervalued and overvalued stocks
a.
An efficient portfolio
b.
A passive portfolio
c.
An active portfolio
d.
An index portfolio
82. A fund based on the efficient market hypothesis is most likely
a.
A passive portfolio
b.
An Active portfolio
c.
An Index portfolio
d.
none of the above
83. The expected possible outcomes for Roxy Stock are below; what is the expected variance of Roxy
Stock?
State
Probabiltiy
Return
Super Boom
10%
35%
Boom
15%
20%
Exapansion
45%
15%
Recession
30%
-5%
a.
2.308%
b.
0.053%
c.
2.362%
d.
0.056%
84. The expected possible outcomes for Roxy Stock are below; what is the expected standard deviation of
Roxy Stock?
State
Probabiltiy
Return
Super Boom
10%
35%
Boom
15%
20%
Exapansion
45%
15%
Recession
30%
-5%
a.
2.308%
b.
0.053%
c.
2.362%
d.
0.056%
State
Probabiltiy
Return
P*r
Super Boom
10%
35%
Boom
15%
20%
Exapansion
45%
15%
Recession
30%
-5%
Standard Deviation
85. The expected outcomes for Louis Stock are below; what is the expected standard deviation of Louis
Stock?
State
Probabiltiy
Return
Super Boom
10%
40%
Boom
20%
25%
Exapansion
60%
15%
Recession
10%
-5%
a.
2.885%
State
Probabiltiy
Return
P*r
Super Boom
10%
35%
Boom
15%
20%
Exapansion
45%
15%
Recession
30%
-5%
Variance
Standard Deviation
b.
0.083%
c.
2.968%
d.
0.088%
86. The expected outcomes for Louis Stock are below; what is the expected variance of Louis Stock?
State
Probabiltiy
Return
Super Boom
10%
40%
Boom
20%
25%
Exapansion
60%
15%
Recession
10%
-5%
a.
2.885%
b.
0.083%
c.
2.968%
d.
0.088%
State
Probabiltiy
Return
P*r
Super Boom
Boom
20%
25%
Exapansion
60%
15%
Recession
10%
-5%
Standard Deviation
87. The expected outcomes of Emma Stock are below; what is the expected variance of Emma Stock?
a.
2.252%
b.
0.051%
c.
2.303%
d.
0.053%
State
Probabiltiy
Return
P*r
Super Boom
10%
40%
Boom
20%
25%
Exapansion
Recession
10%
-5%
Variance
Standard Deviation
88. The expected outcomes of Emma Stock are below; what is the expected variance of Emma Stock?
a.
2.252%
b.
0.051%
c.
2.303%
d.
0.053%