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.
a.
60
b.
70
c.
80
d.
90
3.
From 1989 to April 2003, the Japanese stock market lost what percent of
its value?
a.
50
b.
60
c.
70
d.
80
4.
Which of the following is TRUE regarding the risk premium?
The risk
premium
a.
must reflect all the uncertainty involved in the asset.
b.
does not apply to low beta stocks.
c.
is directly related to changes in the interest rate.
d.
reflects only the financial risk of a security.
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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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.
a.
dividend discount model
b.
riskfree rate
c.
Fisher model
d.
Capital Asset Pricing Model
7.
The nominal riskfree rate is the:
a.
same as the real riskfree rate.
b.
real riskfree rate plus an inflation premium.
c.
real riskfree rate plus an interest rate premium.
d.
market interest rate.
8.
Risk premiums above the riskless rate of return must:
a.
account for inflation
b.
account for overall market risk.
c.
account for business and financial risk.
d.
account for purchasing power risk.
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
10.
Under the CAPM, the relationship between the required rate of return and
risk is assumed to be
a.
linear and downward sloping.
b.
nonlinear and downward sloping.
c.
linear and upward sloping.
d.
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 Fall '11
 Moore

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