FIN300 Unit three

Which of the following statements regarding unsystematic risk is accurate?

It can be effectively eliminated by portfolio diversification.

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

High standard deviation, large risk premium

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 correctly describes the dividend yield?

Next year's annual dividend divided by today's stock price

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

Vanessa purchased a stock one year ago and sold it today for $3.15 per share more than her purchase price. She received a total of $2.60 per share in dividends. Which one of the following statements is correct in relation to this investment?

The capital gains yield is positive.

The average compound return earned per year over a multiyear period is called the _____ average return.

geometric

The market risk premium equals the

market rate of return minus the risk-free rate of return.

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

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

Assume all stock prices fairly reflect all of the available information on those stocks. Which one of the following terms best defines the stock market under these conditions?

Efficient capital market

which is most directly impacted by the level of systematic risk?

Expected rate of return

________ measures total risk, and ________ measures systematic risk.

Standard deviation; beta

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

Treasury bills

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

beta

small company stock

higher return, more risk

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.

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

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

risk-free rate

The ________ is a positively sloped linear function that plots securities' expected returns against their betas.

security market line

treasury bills

short term government invest, very little risk

Most financial securities have some level of ________ risk.

systematic

is this systematic or unsystematic? Investors panic causing security prices around the globe to fall precipitously

systematic

true or false: Eliminating unsystematic risk is the responsibility of the individual investor.

true

An investor who owns a well-diversified portfolio would consider ________ to be irrelevant.

unsystematic risk

Which form of market efficiency would most likely offer the greatest profit potential to an outstanding professional stock analyst?

weak

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

Small-company stocks have lost as much as 50 percent and gained as much as 100 percent in a single year.

Assume you are an analyst monitoring Okello stock. Which one of the following would be reflected in Okello's expected return?

This morning Okello confirmed that, as expected, the CFO is retiring at the end of the year.

The return earned in an average year over a multiyear period is called the _____ average return.

arithmetic

To convince investors to accept greater volatility, you must:

increase the risk premium.

Buchi owns several financial instruments: stocks issued by seven different companies, plus bonds issued by four different companies. Her investments are best described as a(n):

portfolio