BA 318 Week 9

A typical measure for the risk-free rate of return is the:

U.S. Treasury Bill rate

Which one of the following portfolios has the least amount of systematic risk?

a portfolio consisting of various U.S. Treasury bills

Systematic risk is:

a risk that affects a large number of assets

A U.S. Treasury bill has a beta of _____ while the overall market has a beta of _____.

0;1

Sibling Incorporated has a beta of 1. If the expected return on the market is 13%, what is the expected return on Sibling Incorporated's stock?

13%

The difference between beta and standard deviation is best described as:

Beta measures the risk investors are compensated for, while standard deviation measures both systematic and unsystematic risk

Which of the following must total to 100 percent? I. rates of return for the various economic states II. portfolio weights III. probabilities of occurrence for the various economic states IV. betas of the individual securities held within a portfolio

I and III only

The goal of diversification is to eliminate:

unsystematic risk

Which one of the following best exemplifies unsystematic risk?

an unexpected increase in the sales of a firm

The amount of systematic risk present in a particular risky asset relative to that in an average risky asset (or the market in general) is called the:

beta coeffecient

Which one of the following is the best example of systematic risk?

inflation exceeding market expectations

Diversifying a portfolio across various sectors and industries will tend to:

reduce the firm-specific risk

The concept of investing in a variety of diverse assets to reduce risk is referred to as:

the principle of diversification