FIN350
In Class Work No. 2 ( Risk & Returns, part 1)
Please also go over lecture slides.
1.
The
stand alone
risk of a stock is measured by
(a) the stock price
(b) stock returns
(c) the volatility of the stock return (standard deviation)
(d) the mean of the stock price
(e) none of the above
The risk of a stock is measured by the variance or standard deviation of stock
returns. Standard deviation is also called volatility.
2.
Which of the following statement is
NOT true
for a portfolio made up of several
stocks?
a. The expected return = weighted average of each stock’s expected return.
b. The portfolio standard deviation is >= the weighted average of each stock’s
standard deviation.
c. The portfolio beta is the weighted average of each stock’s beta
d. The portfolio standard deviation is <= the weighted average of each stock’s
standard deviation.
3. Which of the following statements is correct?
a.
lower beta stocks have a higher required return.
b.
Two securities with the same standalone risk must have same betas.
c.
Companyspecific risk can be diversified away.
d.
The market risk premium is not affected by investors’ attitudes about risk.
e.
All above statements are correct.
4. Inflation, recession, and high interest rates are economic events that are characterized as
a.
Companyspecific risk that can be diversified away.
b.
Market risk.
c.
Systematic risk that can be diversified away.
d.
Diversifiable risk.
e.
Unsystematic risk that can be diversified away.
5.The risk that remains in a welldiversified stock portfolio is
(a) systematic risk (also called market risk)
(b) firmlevel risk
(c) idiosyncratic risk
(d) unique risk
(e) none of the above
1
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View Full DocumentFirmlevel risk (also called
idiosyncratic risk or unique risk) can be diversified
away in a welldiversified portfolio.
6
A portfolio is__________________________________.
A)
a group of assets, such as stocks and bonds, held collectively by an investor
B)
the expected return on a risky asset
C)
the expected return on a collection of risky assets that are in the same industry
D)
the variance of returns for a risky asset
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 Spring '07
 Chen
 Capital Asset Pricing Model, Volatility, Risk in finance

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