350i2-capm1p

350i2-capm1p - FIN350 In Class Work No. 2 ( Risk &...

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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 stand-alone risk must have same betas. c. Company-specific 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. Company-specific 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 well-diversified stock portfolio is (a) systematic risk (also called market risk) (b) firm-level risk (c) idiosyncratic risk (d) unique risk (e) none of the above 1
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Firm-level risk (also called idiosyncratic risk or unique risk) can be diversified away in a well-diversified 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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350i2-capm1p - FIN350 In Class Work No. 2 ( Risk &amp;...

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