Chapter 11 - Test Bank - Chapter 11 Introduction to Risk...

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Chapter 11 - Introduction to Risk, Return, and the Opportunity Cost of Capital Chapter 11 Introduction to Risk, Return, and the Opportunity Cost of Capital True / False Questions 1. A market index is used to measure performance of a broad-based portfolio of stocks. True False 2. Stock market indexes are found in several countries outside the United States. True False 3. Long-term corporate bonds are the only portfolio of securities found to be riskier than common stocks. True False 4. For investment horizons greater than 20 years, long-term corporate bonds traditionally have outperformed common stocks. True False 5. The S&P 500 accounts for nearly 75% of the total value of stocks traded in the United States. True False 6. When inflation is expected to be low, the risk premium on common stocks is expected to be low. True False 7. If one portfolio's variance exceeds that of another portfolio, its standard deviation will also be greater than that of the other portfolio. True False 11-1
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Chapter 11 - Introduction to Risk, Return, and the Opportunity Cost of Capital 8. For the period between 1900 and 2000, the risk premium of Italy is higher than that of the United States. True False 9. Market risk can be eliminated in a stock portfolio through diversification. True False 10. Macro risks are faced by all common stock investors. True False 11. The risk that remains in a stock portfolio after efforts to diversify is known as unique risk. True False 12. Cyclical stocks tend to perform well when other stocks are performing well also. True False 13. Average returns on high-risk assets are higher than those on low-risk assets. True False 14. The historical record fails to show that investors have received a risk premium for holding risky assets. True False 15. Investors who had bought at the stock market peak in March 2000 would have seen little but falling stock prices over the next two-and-a-half years. True False 11-2
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Chapter 11 - Introduction to Risk, Return, and the Opportunity Cost of Capital 16. Sector funds invest in the broad market index. True False 17. The expected return on an investment provides compensation to investors both for waiting and for worrying. True False 18. All financial managers and economists believe that long-run historical returns are the best measure available. True False 19. Recent surveys of financial economists and chief financial officers have suggested an average risk premium of 5.4 to 6.4%. True False Multiple Choice Questions
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