Corporate Finance Chapter 8

5. This is a measure of risk to reward earned by an investment over a specific period of time. A. coefficient of variation B. market deviation C. standard deviation D. total variation

A

6. This is defined as the portion of total risk that is attributable to firm or industry factors and can be reduced through diversification. A. firm specific risk B. market risk C. modern portfolio risk D. total risk

A

4. This is defined as the volatility of an investment, which includes firm specific risk as well as market risk. A. diversifiable risk B. market risk C. standard deviation D. total risk

D

1. This includes any capital gain (or loss) that occurred as well as any income that you received from a specific investment. A. average return B. dollar return C. market return D. portfolio

B

1. This is typically considered the return on U.S. government bonds and bills and equals the real interest and the expected inflation premium. A. required return B. risk-free rate C. risk premium D. market risk premium

B

11. Which statement is true? A. The larger the standard deviation, the lower the total risk. B. The larger the standard deviation, the higher the total risk. C. The larger the standard deviation, the more portfolio risk. D. The standard deviation is not an indication of total risk.

B

2. The asset pricing theory based on a beta, a measure of market risk. A. Behavioral Asset Pricing Model B. Capital Asset Pricing Model C. Efficient Markets Asset Pricing Model D. Efficient Market Hypothesis

B

4. Which of the following is a true statement? A. The risk and return that a firm experienced in the past is also the risk level for its future. B. Firms can quite possibly change their stocks' risk level by substantially changing their business. C. If a firm takes on riskier new projects over time, the firm itself will become less risky. D. If a firm takes on less risky new projects over time, the firm itself will become more risky.

B

5. A measure of the sensitivity of a stock or portfolio to market risk. A. behavioral finance B. beta C. efficient market D. hedge

B

7. This is the portion of total risk that is attributable to overall economic factors. A. firm specific risk B. market risk C. modern portfolio risk D. total risk

B

. This is the reward for taking systematic stock market risk. A. required return B. risk-free rate C. risk premium D. market risk premium

D

2. This is the dollar return characterized as a percentage of money invested. A. average return B. dollar return C. market return D. percentage return

D

3. Which of these is the measurement of risk for a collection of stocks for an investor? A. beta B. efficient market C. expected return D. portfolio beta

D

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

D