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: Topic: SYSTEMATIC RISK 3. Risk that affects a large number of assets, each to a greater or lesser degree, is called: Topic: UNSYSTEMATIC RISK 4. Risk that affects at most a small number of assets is called:
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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. 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: Topic: REWARD TO RISK RATIO 8. A particular risky asset's risk premium, measured relative to its beta coefficient, is its: Topic: SECURITY MARKET LINE
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