Finance test 2

Which one of the following portfolios will have a beta of zero? A)Which one of the following portfolios will have a beta of zero? B)A portfolio that consists of a single stock C)A portfolio comprised solely of U. S. Treasury bills D)A portfolio with a zero variance of returns E)No portfolio can have a beta of zero.

A portfolio comprised solely of U. S. Treasury bills

Which one of the following is the best example of unsystematic risk? A)Inflation exceeding market expectations B)A warehouse fire C)Decrease in corporate tax rates D)Decrease in the value of the dollar E)Increase in consumer spending

A warehouse fire

An efficient capital market is best defined as a market in which security prices reflect which one of the following?

All available information

Which answer creates a false sentence? Percentage returns:

Are difficult to compute

The amount of systematic risk present in a particular risky asset relative to that in an average risky asset is measured by the :

Beta Coefficient

Which one of the following statements is correct? A)The risk premium on a risk-free security is generally considered to be one percent. B)The expected rate of return on any security, given multiple states of the economy, must be positive. C)There is an inverse relationship between the level of risk and the risk premium given a risky security D)If a risky security is correctly priced, its expected risk premium will be positive. E)If a risky security is priced correctly, it will have an expected return equal to the risk-free rate.

If a risky security is correctly priced, its expected risk premium will be positive.

Which one of these represents systematic risk? A)Major layoff by a regional manufacturer of power boats B)Increase in consumption created by a reduction in personal tax rates C)Surprise firing of a firm's chief financial officer D)Closure of a major retail chain of stores E)Product recall by one manufacturer

Increase in consumption created by a reduction in personal tax rates

Unsystematic risk can be defined by all of the following except...

Market Risk

The slope of the security market line represents the:

Market Risk Premium

On a particular risky investment, investors require an excess return of 7 percent in addition to the risk-free rate of 4 percent. What is this excess return called?

Risk premium

The risk premium for an individual security is based on which one of the following types of risk? A)Total B)Surprise C.)Diversifiable D.)Systematic E.)Unsystematic

Systematic

Which statement is true? A)The expected rate of return on any portfolio must be positive. B)The arithmetic average of the betas for each security held in a portfolio must equal 1.0. C)The beta of any portfolio must be 1.0. D)The weights of the securities held in any portfolio must equal 1.0. E)The standard deviation of any portfolio must equal 1.0.

The weights of the securities held in any portfolio must equal 1.0.

Systematic risk is defined as....

any risk that affects a large number of assets.

The lower the standard deviation of returns on a security, the _____ the expected rate of return and the _____ the risk.

lower; lower

The systematic risk principle states that the expected return on a risky asset depends only on the asset's ________ risk

market

If the financial markets are efficient then:

stock prices should respond only to unexpected news and events.

The standard deviation measures the _____ of a security's returns over time.

volatility