Ch06 - Efficient Diversification 1. Risk that can be...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Efficient Diversification 1. Risk that can be eliminated through diversification is called ______ risk. a. unique b. firm-specific c. diversifiable d. all of the above 2. The _______ decision should take precedence over the _____ decision. a. asset allocation, stock selection b. choice of fad, mutual fund selection c. stock selection, asset allocation
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
d. stock selection, mutual fund selection 3. Many current and retired Enron Corp. employees had their 401k retirement accounts wiped out when Enron collapsed because ____. a. they had to pay huge fines for obstruction of justice b. they had purchased fines for obstruction of justice c. their 401k accounts were not well diversified d. none of the above 4. From the beginning of 2000 until early 2002, approximately ____ percent of U. S. stocks fell by two-thirds or more, while approximately ____ percent of diversified stock mutual funds fell by two-thirds or more. a. 20, 1 b. 30, 10
Background image of page 2
c. 60,20 d. none of the above 5. Asset A has an expected return of 15% and a reward-to-variability ratio of .4. Asset B has an expected return of 20% and a reward-to-variability ratio of .3. A risk-averse investor would prefer a portfolio using the risk-free asset and _______. a. asset A b. asset B c. no risky asset d. can't tell from the data given 6. Adding additional risky assets will generally move the efficient frontier _____ and to the _______. a.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
up, right b. up, left c. down, right d. down, left 7. An investor's degree of risk aversion will determine his _______. a. optimal risky portfolio b. risk-free rate c. mix of risk-free asset and optimal risky asset d. choice of risk free asset 8. The ________ is equal to the square root of the systematic variance divided by the total variance.
Background image of page 4
a. covariance b. correlation coefficient c. standard deviation d. reward-to-variability ratio 9. The _________ could be used in an index model to represent common or systematic risk factors. a. firm size b. industry c. S&P500 index d. capital allocation line
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
10. Asset A has an expected return of 20% and a standard deviation of 25%. The risk free rate is 10%. What is the reward-to-variability ratio? a. .40 b. .50 c. .75 d. .80 11. Diversification is most effective when security returns are __________. a. high b. negatively correlated c. positively correlated
Background image of page 6
d. uncorrelated 12. The variance of a portfolio of risky securities is __________. a. the sum of the securities' covariances b. the sum of the securities' variances c. the weighted sum of the securities' covariances d. the weighted sum of the securities' variances 13. Beta is a measure of __________. a. firm specific risk b. diversifiable risk c.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
market risk d. unique risk 14. The risk that can be diversified away is ___________. a.
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 41

Ch06 - Efficient Diversification 1. Risk that can be...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online