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Chapter 11 COMMON STOCKS: ANALYSIS AND STRATEGY Multiple Choice Questions Taking a Global Perspective 1. A general consensus of analysts is that a typical investor should have ___ to ______ percent of his/her portfolio in international markets. a. 5; 10 b. 10; 20 c. 20: 30 d. 30: 40 Analyzing Some Important Issues Involving Common Stock 2. For adequately diversified common stock portfolios, market effects often account for -------- percent and more of the variability of the portfolio’s return. 3. From 1989 to April 2003, the Japanese stock market lost what percent of its value? 4. Which of the following is TRUE regarding the risk premium? The risk premium 5. The required rate of return for a common stock is defined as the: a. expected return given an assumed set of probabilities and expected cash flows on the stock. b. minimum expected return necessary to induce an investor to purchase the stock. Chapter Eleven Common Stocks: Analysis and Strategy 135
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c. maximum expected return based on estimates of expected cashflows from the stock. d. expected return after evaluation of the risk on the stock has been taken. 6. The -------------- provides investors with a method of calculating a required return for a stock. 7. The nominal risk-free rate is the: 8. Risk premiums above the riskless rate of return must: 9. If investors in the market become more pessimistic, it is expected that the risk premium will ----------- and the required return will ----------. a. increase; increase b. increase; decrease c. decrease; decrease d. decrease; increase
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