Chapter 13 Test Bank

Chapter 13 Test Bank - CHAPTER 11 Risk and Return I....

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CHAPTER 11 Risk and Return I. DEFINITIONS Topic: PORTFOLIOS 1. A portfolio is ___________________________. A) a group of assets, such as stocks and bonds, held as a collective unit by an investor B) the expected return on a risky asset C) the expected return on a collection of risky assets D) the variance of returns for a risky asset E) the standard deviation of returns for a collection of risky assets Answer: A Topic: PORTFOLIO WEIGHTS 2. The percentage of a portfolio's total value invested in a particular asset is called that asset's: A) Portfolio return. B) Portfolio weight. C) Portfolio risk. D) Rate of return. E) Investment value. Answer: B Topic: SYSTEMATIC RISK 3. Risk that affects a large number of assets, each to a greater or lesser degree, is called: A) Idiosyncratic risk. B) Diversifiable risk. C) Systematic risk. D) Asset-specific risk. E) Total risk. Answer: C Topic: UNSYSTEMATIC RISK 4. Risk that affects at most a small number of assets is called: A) Portfolio risk. B) Undiversifiable risk. C) Market risk. D) Unsystematic risk. E) Total risk. Answer: D
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Topic: PRINCIPLE OF DIVERSIFICATION 5. The principle of diversification tells us that: A) Concentrating an investment in two or three large stocks will eliminate all of your risk. B) Concentrating an investment in two or three large stocks will reduce your overall risk. C) Spreading an investment across many diverse assets cannot (in an efficient market) eliminate any risk. D) Spreading an investment across many diverse assets will eliminate all of the risk. E) Spreading an investment across many diverse assets will eliminate some of the risk. Answer: E Topic: SYSTEMATIC RISK PRINCIPLE 6. The ___________________ tells us that the expected return on a risky asset depends only on that asset's systematic risk. A) Efficient Markets Hypothesis (EMH) B) systematic risk principle C) Open Markets Theorem D) Law of One Price E) principle of diversification Answer: B Topic: BETA COEFFICIENT 7. The amount of systematic risk present in a particular risky asset, relative to the systematic risk present in an average risky asset, is called the particular asset's: A) Beta coefficient. B) Reward to risk ratio. C) Law of One Price. D) Diversifiable risk. E) Treynor index. Answer: A Topic: REWARD TO RISK RATIO 8. A particular risky asset's risk premium, measured relative to its beta coefficient, is its: A) Diversifiable risk. B) Systematic risk. C) Reward to risk ratio. D) Security market line. E) Market risk premium. Answer: C Topic: SECURITY MARKET LINE 9. The linear relation between an asset's expected return and its beta coefficient is the:
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Reward to risk ratio. B) Portfolio weight. C) Portfolio risk. D)
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This note was uploaded on 05/10/2011 for the course FIN 3716 taught by Professor Fang during the Spring '10 term at LSU.

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Chapter 13 Test Bank - CHAPTER 11 Risk and Return I....

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