FRL chap13

Which one of the following: measures the amount of systematic risk: present in a particular risky asset: relative to the systematic risk: present in an average risky asset?

A. beta

Suzie owns five different bonds valued at $36,000 and twelve different stocks valued at $82,500 total. Which one of the following terms most applies to Suzie's investments?

B. portfolio

Steve has invested in twelve different stocks that have a combined value today of $121,300. Fifteen percent of that total is invested in Wise Man Foods. The 15 percent is a measure of which one of the following?

B. portfolio weight

The _____ tells us that the expected return on a risky asset depends only on that asset's nondiversifiable risk.

B. systematic risk principle

You own a stock that you think will produce a return of 11 percent in a good economy and 3 percent in a poor economy. Given the probabilities of each state of the economy occurring, you anticipate that your stock will earn 6.5 percent next year. Which one of the following terms applies to this 6.5 percent?

C. expected return

Which one of the following is a risk that applies to most securities?

C. systematic

A news flash just appeared that caused about a dozen stocks to suddenly drop in value by about 20 percent. What type of risk does this news flash represent?

D. unsystematic

The principle of diversification tells us that:

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

The expected return on a portfolio considers which of the following factors? I. percentage of the portfolio invested in each individual security II. projected states of the economy III. the performance of each security given various economic states IV. probability of occurrence for each state of the economy

I, II, III, and IV (All) I. percentage of the portfolio invested in each individual security II. projected states of the economy III. the performance of each security given various economic states IV. probability of occurrence for each state of the economy

The expected return on a portfolio: I. can never exceed the expected return of the best performing security in the portfolio. II. must be equal to or greater than the expected return of the worst performing security in the portfolio. III. is independent of the unsystematic risks of the individual securities held in the portfolio. IV. is independent of the allocation of the portfolio amongst individual securities.

I, II, and III only The expected return on a portfolio: I. can never exceed the expected return of the best performing security in the portfolio. II. must be equal to or greater than the expected return of the worst performing security in the portfolio. III. is independent of the unsystematic risks of the individual securities held in the portfolio. IV. is independent of the allocation of the portfolio amongst individual securities.

The expected return on a portfolio:

I. can never exceed the expected return of the best performing security in the portfolio. II. must be equal to or greater than the expected return of the worst performing security in the portfolio. III. is independent of the unsystematic risks of the individual securities held in the portfolio.

Which one of the following: is represented by the slope: of the security market line?

a market risk premium

The expected return on a stock computed using economic probabilities is:

a mathematical expectation: based on a weighted average: and not an actual anticipated outcome.

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?

capital asset pricing model

Treynor Industries is investing in a new project. The minimum rate of return the firm requires on this project is referred to as the:

cost of capital.

The expected rate of return on a stock portfolio: is a weighted average: where the weights are based on the:

market value of the investment in each stock.

If a stock portfolio is well diversified, then the portfolio variance:

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

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

risk-free rate.

Which one of the following is a positively sloped linear function that is created when expected returns are graphed against security betas

the security market line

Standard deviation measures which type of risk?

total

The expected return on a stock: given various states of the economy: is equal to the:

weighted average of the returns for each economic state.