Chapter 9 Principles of Finance Review

Which of these is the portion of total risk that is attributable to overall economic factors? Multiple Choice firm specific risk market risk modern portfolio risk total risk

market risk

Which of these is defined as a combination of investment assets held by an investor? Multiple Choice bundle market basket portfolio All of these choices are correct.

portfolio

Which of these is a measure of risk to reward earned by an investment over a specific period of time? Multiple Choice coefficient of variation market deviation standard deviation total variation

coefficient of variation

Which of these is the term for collections of portfolios with the highest return possible for each risk level? Multiple Choice efficient portfolios modern portfolios optimal portfolios total portfolios

efficient portfolios

Which of the following is defined as the portion of total risk that is attributable to firm or industry factors and can be reduced through diversification? Multiple Choice firm specific risk market risk modern portfolio risk total risk

firm specific risk

Which of these is a measure summarizing the overall past performance of an investment? Multiple Choice average return dollar return market return percentage return

average return

Which statement is NOT true regarding efficient portfolios? Multiple Choice Combining stocks that move together over time does not offer much risk reduction. Combining stocks that do not move together provides a lot of risk reduction. Both choices are NOT true. None of the choices are NOT true.

Combining stocks that move together over time does not offer much risk reduction.

Which of the following is an index that tracks 500 companies, which allows for a great deal of diversification? Multiple Choice NASDAQ Fortune 500 S&P 500 Wall Street Journal

S&P 500

Seraphina wants to invest in only two stocks. Which pair of stocks should Seraphina select? Multiple Choice Stocks A and B move downward at the same time. Stocks C and D move in opposite directions at the same time. Stocks E and F move upward at the same time. Stocks G and H move randomly at the same time.

Stocks C and D move in opposite directions at the same time.

Which of these statements is true? Multiple Choice When people purchase a stock, they know exactly what their dollar and percent return are going to be. Many people purchase stocks as they find comfort in the certainty for this safe form of investing. When people purchase a stock, they know the short-term return, but not the long-term return. When people purchase a stock, they do not know what their return is going to be—either short term or in the long run.

When people purchase a stock, they do not know what their return is going to be—either short term or in the long run.

The process of putting money in different types of investments for the purpose of reducing the overall risk of the portfolio is called _____________blank. Multiple Choice diversification the S&P 500 Index market risk the stock market

diversification

To find the percentage return of an investment Multiple Choice multiply the dollar return by the investment's value at the beginning of the period. divide the dollar return by the investment's value at the beginning of the period. multiply the dollar return by the investment's value at the end of the period. divide the dollar return by the investment's value at the end of the period.

divide the dollar return by the investment's value at the beginning of the period.

Which of these includes any capital gain (or loss) that occurred as well as any income that you received from a specific investment? average return dollar return market return risk-free return

dollar return

Which of the following is another term for market risk? Multiple Choice firm specific risk modern portfolio risk nondiversifiable risk total risk

nondiversifiable risk

Which of these is the investor's combination of securities that achieves the highest expected return for a given risk level? Multiple Choice efficient portfolio modern portfolio optimal portfolio total portfolio

optimal portfolio

Which of these is the dollar return characterized as a percentage of money invested? Multiple Choice average return dollar return market return percentage return

percentage return

Which of the following is defined as the volatility of an investment, which includes firm specific risk as well as market risk? Multiple Choice diversifiable risk market risk standard deviation total risk

total risk