fin exam 3 chapter 13

The ________ is a positively sloped linear function that plots securities' expected returns against their betas. 1.market security line 2normal distribution. 3.market real returns

market security line

When calculating the expected rate of return on a stock portfolio using a weighted average, the weights are based on the: 1.number of shares owned of each stock. 2.original amount invested in each stock. 3.market value of the investment in each stock.

market value of the investment in each stock.

A ________ is the market's measure of systematic risk.

beta of 1

The slope of the security market line is the: 1.expected return of the market. 2.market standard deviation. 3.market risk premium.

market risk premium.

To calculate the expected risk premium on a stock, one must subtract the ________ from the stock's expected return. 1.risk-free rate 2.variance 3.standard deviation

risk-free rate

________ measures total risk, and ________ measures systematic risk.

Standard deviation; beta

With respect to returns, which one of the following statements is accurate? 1.Over time, the average unexpected return will be zero. 2.The expected return minus the unexpected return is equal to the total return. 3.Over time, the average return is equal to the unexpected return.

.Over time, the average unexpected return will be zero.

Which of the following statements regarding unsystematic risk is accurate? 1.It is compensated for by the risk premium. 2.It can be effectively eliminated by portfolio diversification. 3.It is measured by standard deviation.

It can be effectively eliminated by portfolio diversification.

Of the options listed below, which is the best measure of systematic risk?

beta

Which of the following statements best describes the principle of diversification? 1.Spreading an investment across multiple diverse companies will not lower the total risk. 2.Spreading an investment across many diverse assets will eliminate all of the systematic risk. 3.Spreading an investment across many diverse assets will eliminate some of the total risk.

.Spreading an investment across many diverse assets will eliminate some of the total risk.

If the market is efficient and securities are priced fairly, all securities will have the same: 1.beta value. 2standard deviation.. 3.reward-to-risk ratio.

reward-to-risk ratio.