Fin 300 example questions

For the period 1926-2019, the average risk premium on large-company stocks was about:

8.7 percent

Of the options listed below, which is the best example of a diversifiable risk?

A firm's sales decrease

Which one of the following statements is accurate?

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

Which one of the following statements best defines the efficient market hypothesis?

All securities in an efficient market are zero net present value investments.

Which one of the following statements related to capital gains is correct?

An increase in an unrealized capital gain will increase the capital gains yield.

________ measures the amount of systematic risk present in a particular risky asset relative to the systematic risk present in an average risky asset.

Beta

What was the average rate of inflation over the period of 1926-2019?

Between 2.8 and 3.2 percent

Which of the following statements is true based on the historical record for 1926-2019?

Bonds are generally a safer, or less risky, investment than are stocks.

Of the options listed below, which is most directly impacted by the level of systematic risk?

Expected rate of return

Generally speaking, which of the following best correspond to a wide frequency distribution?

High standard deviation, large risk premium

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

Investors panic causing security prices around the globe to fall precipitously.

Which of the following statements is accurate regarding the dividend growth model?

It is only as reliable as the estimated rate of growth.

Which of the following statements regarding the weighted average cost of capital is accurate?

It is the return investors require on the total assets of the firm.

Which one of the following statements is correct based on the historical record for the period 1926-2019?

Long-term government bonds had a lower return but a higher standard deviation, on average, than did long-term corporate bonds.

Which one of the following statements related to market efficiency tends to be supported by current evidence?

Markets tend to respond quickly to new information.

Which one of the following is defined by its mean and its standard deviation?

Normal distribution

An investor wants to reduce the unsystematic risk in her portfolio. Which of the following actions is least likely to do so?

Reducing the number of stocks held in her stock portfolio

Which one of the following categories of securities had the highest average annual return for the period 1926-2019?

Small-company stocks

Which one of the following is the most likely reason why a stock price might not react at all on the day that new information related to the stock's issuer is released? Assume the market is semistrong form efficient.

The information was expected.

With respect to risk, which of the following statements is accurate?

The systematic risk of a portfolio can be lowered by adding T-bills to the portfolio.

The rate of return on which type of security is normally used as the risk-free rate of return?

Treasury bills

Evidence seems to support the view that studying public information to identify mispriced stocks is:

ineffective

The slope of the security market line is the:

market risk premium.

When calculating the expected rate of return on a stock portfolio using a weighted average, the weights are based on the:

market value of the investment in each stock.

Given a well-diversified stock portfolio, the variance of the portfolio:

may be less than the variance of the least risky stock in the portfolio.

To calculate the expected risk premium on a stock, one must subtract the ________ from the stock's expected return.

risk-free rate

Most financial securities have some level of ________ risk.

systematic

An unexpected post on social media caused the prices of 22 different companies' stocks to immediately increase by 10 to 15 percent. This occurrence is best described as an example of ________ risk.

unsystematic

Assume a manager determines the cost of capital for a specific project based on the cost of capital at another firm with a line of business that is similar to the project. Accordingly, the manager is using the ________ approach

pure play

If the market is efficient and securities are priced fairly, all securities will have the same:

reward-to-risk ratio.

The ________ is the excess return earned by a risky asset over the return earned by a risk-free asset.

risk premium

Efficient financial markets fluctuate continuously because:

the markets are continually reacting to new information.