FIN300

20. The systematic risk of the market is measured by:

A. A beta of 1.0.

15. Unsystematic risk:

A. Can be effectively eliminated by portfolio diversification.

18. Which one of the following is the formula that explains the relationship between the expected return on a security and the level of that security's systematic risk?

A. Capital asset pricing model

21. Which one of the following statements is correct concerning a portfolio beta?

B. A portfolio beta is a weighted average of the betas of the individual securities contained in the portfolio.

19. Systematic risk is measured by:

B. Beta.

5. To convince investors to accept greater volatility, you must:

B. Increase the risk premium.

14. The expected risk premium on a stock is equal to the expected return on the stock minus the:

B. Risk-free rate.

30. Which one of the following risks is irrelevant to a well-diversified investor?

B. Unsystematic risk.

Which one of the following is the best example of a diversifiable risk?

D. A firm's sales decrease.

32.Total risk is measured by _____ and systematic risk is measured by _____.

D. Standard deviation; beta.

3. The U.S. Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits. Given this, you would be most apt to argue that the markets are less than _____ form efficient.

D. Strong

28.The after-tax cost of debt:

E. Is highly dependent upon the firm's tax rate.

2. The principle of diversification tells us that:

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