Chap011 - Chapter 11 - Risk and Return Chapter 11 Risk and...

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Unformatted text preview: Chapter 11 - Risk and Return Chapter 11 Risk and Return Multiple Choice Questions 1. Mary owns a risky stock and anticipates earning 16.5 percent on her investment in that stock. Which one of the following best describes the 16.5 percent rate? A. Expected return B. Real return C. Market rate D. Systematic return E. Risk premium 2. Which one of the following best describes a portfolio? A. Risky security B. Security equally as risky as the overall market C. New issue of stock D. Group of assets held by an investor E. Investment in a risk-free security 3. Stock A comprises 28 percent of Susan's portfolio. Which one of the following terms applies to the 28 percent? A. Portfolio variance B. Portfolio standard deviation C. Portfolio weight D. Portfolio expected return E. Portfolio beta 4. Which one of the following describes systemic risk? A. Risk that affects a large number of assets B. An individual security's total risk C. Diversifiable risk D. Asset specific risk E. Risk unique to a firm's management 11-1 Chapter 11 - Risk and Return 5. Which of the following terms can be used to describe unsystematic risk? I. asset-specific risk II. diversifiable risk III. market risk IV. unique risk A. I and IV only B. II and III only C. I, II, and IV only D. II, III, and IV only E. I, II, III, and IV 6. Which one of the following terms best refers to the practice of investing in a variety of diverse assets as a means of reducing risk? A. Systematic B. Unsystematic C. Diversification D. Security market line E. Capital asset pricing model 7. The systematic risk principle states that the expected return on a risky asset depends only on which one of the following? A. Unique risk B. Diversifiable risk C. Asset-specific risk D. Market risk E. Unsystematic risk 8. Which one of the following measures the amount of systematic risk present in a particular risky asset relative to that in an average risky asset? A. Squared deviation B. Beta coefficient C. Standard deviation D. Mean E. Variance 11-2 Chapter 11 - Risk and Return 9. The security market line is a linear function which is graphed by plotting data points based on the relationship between which two of the following variables? A. Risk-free rate and beta B. Market rate of return and beta C. Market rate of return and the risk-free rate D. Risk-free rate and the market rate of return E. Expected return and beta 10. Which one of the following is the slope of the security market line? A. Risk-free rate B. Market risk premium C. Beta coefficient D. Risk premium on an individual asset E. Market rate of return 11. The security market line is defined as a positively sloped straight line that displays the relationship between which two of the following variables?...
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This note was uploaded on 03/11/2012 for the course FIN 320 taught by Professor Guy during the Fall '08 term at CSU Fullerton.

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Chap011 - Chapter 11 - Risk and Return Chapter 11 Risk and...

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