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Unformatted text preview: ch10 Student: _______________________________________________________________________________________ Multiple Choice Questions 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. 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. 3. Risk that affects a large number of assets, each to a greater or lesser degree, is called _____ risk. A. idiosyncratic B. diversifiable C. systematic D. asset-specific E. total 4. Risk that affects at most a small number of assets is called _____ risk. A. portfolio B. undiversifiable C. market D. unsystematic E. total 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 three companies all within the same industry will greatly reduce your overall risk. C. spreading an investment across five diverse companies will not lower your overall risk at all. 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. 6. The _____ tells us that the expected return on a risky asset depends only on that asset's nondiversifiable risk. A. Efficient Markets Hypothesis (EMH) B. systematic risk principle C. Open Markets Theorem D. Law of One Price E. principle of diversification 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. total risk. D. diversifiable risk. E. Treynor index. 8. The linear relation between an asset's expected return and its beta coefficient is the: A. reward-to-risk ratio. B. portfolio weight. C. portfolio risk. D. security market line. E. market risk premium. 9. The slope of an asset's security market line is the: A. reward-to-risk ratio. B. portfolio weight. C. beta coefficient. D. risk-free interest rate. E. market risk premium. 10. You are considering purchasing stock S. This stock has an expected return of 8% if the economy booms and 3% if the economy goes into a recessionary period. The overall expected rate of return on this stock will: A. be equal to one-half of 8% if there is a 50% chance of an economic boom....
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- Spring '11