test6 - Chapter 6-The Tradeoff Between Risk and Return...

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Chapter 6—The Tradeoff Between Risk and Return MULTIPLE CHOICE 1. Which of the following is an example of systematic risk? a. IBM posts lower than expected earnings. b. Intel announces record earnings. c. The national trade deficit is higher than expected. d. None of the above. ANS: C DIF: E REF: 6.4 The Power of Diversification 2. Which of the following is an example of unsystematic risk? a. IBM posts lower than expected earnings. b. The Fed raises interest rates unexpectedly. c. The rate of inflation is higher than expected. d. None of the above. ANS: A DIF: E REF: 6.4 The Power of Diversification 3. What do you call the portion of your total return on a stock investment that is caused by an increase in the value of the stock. a. Dividend yield. b. Risk-free return. c. Capital gain. d. None of the above. ANS: C DIF: E REF: 6.1 Understanding Returns 4. What is one of the most important lessons from capital market history? a. Risk does not matter. b. There is a positive relationship between risk and return. c. You are always better off investing in stock. d. T-bills are the highest yielding investment. ANS: B DIF: E REF: 6.2 The History of Returns 5. What is the purpose of diversification? a. Maximize possible returns. b. Increase the risk of your portfolio.
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c. Lower the overall risk of your portfolio. d. None of the above. ANS: C DIF: E REF: 6.4 The Power of Diversification NARRBEGIN: Bavarian Sausage Bavarian Sausage You bought a share of Bavarian Sausage stock for $46.50 at the beginning of the year. During the year the stock paid a $2.75 dividend and at the end of the year it trades at $52.75. NARREND 6. Refer to Bavarian Sausage. What is the total return of your stock investment? a. 5.91% b. 13.44% c. 26.69% d. 19.35% ANS: D (52.75 + 2.75 - 46.5)/46.5 = .1935 DIF: E REF: 6.1 Understanding Returns NAR: Bavarian Sausage 7. Refer to Bavarian Sausage. What is the capital gain/loss on your stock investment? a. 5.91% b. 13.44% c. 19.35% d. 28.24% ANS: B (52.75-46.5)/46.5 = .1344 DIF: E REF: 6.1 Understanding Returns NAR: Bavarian Sausage 8. Refer to Bavarian Sausage. What is the total dollar return on your investment? a. $9.00 b. $2.75 c. $6.25 d. $52.75 ANS: A 52.75 + 2.75 - 46.50 = 9 DIF: E REF: 6.1 Understanding Returns NAR: Bavarian Sausage
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NARRBEGIN: Bavarian Sausage 2 Bavarian Sausage 2 You bought a share of Bavarian Sausage stock for $46.50 at the beginning of the year. During the year the stock paid a $2.75 dividend and at the end of the year it trades at $44.75. NARREND 9. Refer to Bavarian Sausage 2. What is the total return on your investment? a. 2.15% b. -3.76% c. 8.06% d. 5.91% ANS: A (44.75 + 2.75 - 46.5)/46.5 = .0215 DIF: E REF: 6.1 Understanding Returns NAR: Bavarian Sausage 2 10. Refer to Bavarian Sausage 2. What is the capital gain’s yield of your investment? a.
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test6 - Chapter 6-The Tradeoff Between Risk and Return...

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