Module 6 Test

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If you invest 40% of your investment in GE with an expected rate of return of 10% and the remainder in IBM with an expected rate of return of 16%, the expected return on your portfolio is: A. 12.4% B. 13% C. 13.6% D. 14.5%

C. 13.6%

A rational investor will always prefer an investment with a lower standard deviation of returns, because such investments are less risky. True False

False

A rational investor will always prefer an investment with a lower standard deviation of returns, because such investments are less risky. True False

False

Company unique risk will be increased with a portfolio consisting of approximately 20 securities. True False

False

Historically, investments with the highest returns have the lowest standard deviations because investors do not like risk. True False

False

In general, large company stocks are less risky than Treasury bonds. True False

False

Proper diversification generally results in the elimination of risk. True False

False

The expected rate of return from an investment is equal to the expected cash flows divided by the initial investment. True False

False

The market rewards the patient investor, for the period between 1926 and 2016, there has never been a time when an investor lost money if she held an all−large−stock portfolio for ten years. True False

False

Assume that you have $100,000 invested in a stock that is returning 14%, $150,000 invested in a stock that is returning 18%, and $200,000 invested in a stock that is returning 15%. What is the expected return of your portfolio? A.15.78% B.13.25% C.15.67% D.14.97%

14x 100,000/(100,000+150,000+200,000)+18x150,000/(100,000+150,000+200,00)+ 15x 200,000 (100,000+150,000+200,000) = 15.78 A.15.78%

The category of securities with the highest historical risk premium is A. small company corporate bonds. B. mid company stocks. C. large company stocks. D. government bonds.

B. mid company stocks.

Unique security risk can be eliminated from an investor's portfolio through diversification. True False

True

Variation in the rate of return of an investment is a measure of the riskiness of that investment. True False

True

The Capital Asset Pricing Model (CAPM) states that the expected return on an asset depends on a. the standard deviation of its historical returns. b. the risk-free rate. c. its level of diversifiable risk. d. its level of systematic risk.

d. its level of systematic risk.

A market in which prices reflect all public and private knowledge including past and current information is called a _________________________. a. non-efficient market b. semi-strong form efficient market c. weak form efficient market d. strong form efficient market

d. strong form efficient market

A _______________________ is a market in which all publicly available information, both current and past, is reflected in asset prices. a. weak form efficient market b. semi-strong form efficient market c. strong form efficient market d. non-efficient market

b. semi-strong form efficient market

Financial risk occurs because _____________________ do no change when operating income rises or falls. a. tax expenses b. overhead expenses c. fixed interest expenses d. wage expenses

c. fixed interest expenses

Rather than using a limited number of states of nature with specific values for inflation and economic growth, _______________ allows many different combinations of the important variables that may determine stock returns. a. reticence b. replication c. simulation d. affectation

c. simulation

The total risk of a portfolio can be measured by its ________________. a. combined return b. changes in the level of interest rates c. variance or the standard deviation of its returns d. weighted average of asset variances

c. variance or the standard deviation of its returns

Business risk leads to _______________ in a firm's operating income over time. a. changes in quantity sold b. changes in the firm's mark up on its sales c. variation d. changes in a firm's level of fixed costs

c. variation

Which of the following is not a component of the required rate of return? a. real risk-free rate of return b. inflation expectations c. risk premium d. appropriate discount rate

d. appropriate discount rate

On April 9, 2007, Travis decided to purchase 200 shares of Mastercard (MA). The price he paid for MA was $10.83/share. On April 7, 2017 MA closed at $112.24/share. No including dividends, what was Travis': Dollar Return: Capital Gains: Annualized return:

$20,282 936.38% 26.34%

Adam purchases a Treasury bond for $1,050 and receives interest of $160. He then sells the bond for $980. What was Adam's total return while he owned the Treasury bond?

8.57%

Suppose you purchased 16 shares of Diamond Company stock for $24.22 per share on May 1, 2016. On September 1 of the same year, you sold 12 shares of the stock for $25.68. Calculate the holding-period dollar gain for the shares you sold, assuming no dividend was distributed, and the holding-period rate of return. Holding period dollar gain, DG= (end+dividend- beginning)x number of shares Rate of return= dollar gain/beginning a. The holding-period dollar gain for the shares you sold is Part 2 b. The holding-period rate of return is

(25.68+0-24.22)x12 $17.52 25.68-24.22/24.22 6.03%

True Green Products, Inc., whose common stock is currently selling for $12 per share, is expected to pay a $1.80 dividend, and sell for $14.40 one year from now. What are the dividend yield, growth rate, and total rate of return, respectively? A. 15%; 20%; 35% B. 10%; 5%; 15% C. 15%; 12%; 27% D. 20%; 15%; 35%

1.80/12. 14.4-12/12. 15+20 A. 15%; 20%; 35%

Alps Sector Dividend Dogs (SDOG) an ETF, had the following returns: 2013 2014 2015 2016 24.5% 12.6% -4.3% 15.48% What is the average return for SDOG? What is the geometric return for SDOG? What is the standard deviation for SDGO?

12.07% 11.57% 12.03%

US Bank (USB ) had the following Returns over the past 3 years 2017 2018 2019 20.39% 4.30% -14.7% What is US Bank's standard deviation? Round to nearest decimal point.

17.6 (17.59-17.61)

Bob purchases 100 shares of stock at $65 per share. Two years later, Bob sells the 100 shares for $72 per share. In addition, Bob received a dividend of $2 per share in the first year and $3 per share in the second year. a. What is the total rate of return for Bob for the time that he invested in Disney? b. What was Bob's annualized rate for the two years?

18.46% 8.84%

Since 2012, Allstate (ALL) has paid dividends every year at the following amount: 2012 2013 2014 2015 2016 $0.88 $1.00 $1.12 $1.20 $1.32 You had purchase Allstate stock because you just started your home and auto insurance with Allstate and thought you would invest in their stock. You purchased 250 shares ALL in early 2012 for $27.74/share. Allstate closed on Friday, April 7, 2017 at $81.11/ share. What was: What was the dividends paid in the following years: What has been the Capital Gain in dollars have you had in your Allstate Investment? What has been the Capital Gain % have you had in your Allstate Investment? What has been the total amount of dividends you have received from your Allstate investment $ What has been the growth in your dividends since 2012 What has been the total return for your investment in Allstate? What has been your annualized growth from your investment in Allstate?

2012 = $ 220 2013 = $ 250 2014 = $ 280 2015 = $ 300 2016 = $ 330 $13,342.50 192.39% $ 1,380.00 8.45% 212.29% 25.58%

Caroline purchased 100 shares in early 2012 for $35.07/share. The Stock paid the following dividends: 2012 2013 2014 2015 2016 $1.02 $1.12 $1.22 $1.32 $1.40 On December 31, 2016 KO closed at $41.46/share. Assuming that all dividends were taking as distributions, what was the total return for KO during this time? What was the dividends paid in the following years? 2012 = $__ 2013 = $___ 2014 = $___ 2015 = $___ 2016 = $__ What is the total amount of the dividends paid over five years? b How much of KO's return was due to Capital Gains (Loss)? c How much of KO's return was due to Dividends ?

2012 = $__102_______ 2013 = $___112______ 2014 = $___122______ 2015 = $___132______ 2016 = $___140______ 35.56% 18.22% 17.34%

Caroline purchased 100 shares of Coca-Cola (K) in early 2012 for $35.07/share. KO paid the following dividends: 2012 2013 2014 2015 2016 $1.02 $1.12 $1.22 $1.32 $1.40 On December 31, 2016 KO closed at $41.46/share. Assuming that all dividends were taking as distributions, what was the total return for KO during this time? What was the dividends paid in the following years? What is the total amount of the dividends paid over five years? How much of KO's return was due to Capital Gains (Loss)? How much of KO's return was due to Dividends ?

2012 = $__102_______ 2013 = $___112______ 2014 = $___122______ 2015 = $____132_____ 2016 = $___140______ Total Return = 35.56% 18.22% 17.34%

Bob purchases 100 shares of Disney (DIS) stock on October 26th, 2015 at $107.96 per share. Three years later on October 25, 2018, Bob sells the 100 shares for $113.28 per share. In addition, Bob received a dividend of Year 1 $1.42 per share Year 2 $1.56 per share Year 3 $1.68 per share What was Bob's annualized rate for the three years? Round to the nearest decimal point?

3 (2.97-3.03)

From the price data in the popup window, compute the holding-period returns for periods 2 through 4. PERIOD STOCK PRICE 1 10 2 13 3 11 4 15 End-beginning/beginning a. The holding-period return in period 2 (from period 1 to period 2) for the stock is b. The holding-period return in period 3 (from period 2 to period 3) for the stock is c. The holding-period return in period 4 (from period 3 to period 4) for the stock is

30% -15.38% 36.36%

Bob purchases 100 shares of Disney (DIS) stock at $40 per share. Two years later, Bob sells the 100 shares for $52 per share. In addition, Bob received a dividend of $2 per share in the first year and $3 per share in the second year. What is the total rate of return for Bob for the time that he invested in Disney? What was Bob's annualized rate for the two years?

42.50% 19.37%

Core Laboratories stock is expected to pay a $4 annual dividend next year, and the current $60 stock price is expected to rise to $63 over the next year. What is the expected return? A. 11.67% B. 12.11% C. 8.25% D. 15.34%

A. 11.67%

A. 212%

You are considering investing in Johnson & Johnson . Which of the following are examples of diversifiable risk? I. Risk associated with accounting irregularities resulting in a major restatement of company earnings downward. II. Risk resulting from uncertainty regarding a class action due to a product. III. Risk associated with a fear of a widespread epidemic. IV. Risk resulting from an expensive product recall. A. I,II and IV B. II,III C. I only D. I, II, III, IV

A. I,II and IV

Financial risk occurs because _____________________ do no change when operating income rises or falls. A. fixed interest expenses B. tax expenses C. overhead expenses D. wage expenses

A. fixed interest expenses

Which of the following statements is MOST correct concerning diversification and risk? A. Diversification is mainly achieved by the asset allocation decision, not the selection of individual securities within each asset category. B. Asset allocation is important for pension funds but not for individual investors. C. Large company stocks and small company stocks together in a portfolio lead to dramatic reductions in risk because their returns are negatively correlated. D. Diversification is mainly achieved by the selection of individual securities for each type of asset held in a portfolio.

A. Diversification is mainly achieved by the asset allocation decision, not the selection of individual securities within each asset category.

You are considering buying some stock in Boeing. Which of the following are examples of non-diversifiable risks? I. Risk resulting from a general decline in the stock market. II. Risk resulting from a possible increase in corporate income taxes. III. Risk resulting from a plane crash due to software problems IV. Risk resulting from a pending lawsuit against Boeing. A. I and II B. III and IV C. I only D. II, III, and IV

A. I and II

According to the definitions given in the text, if Stock A has a standard deviation of 4% and expected returns of 9%, and Stock B has a standard deviation of 3% and returns of 1%, which stock has a better risk/reward profile? A. Stock A B. Stock B C. they are equally risky D. cannot determine from the information given

A. Stock A

In comparing the deviations of returns, which one of the following assets has historically had the largest standard deviation of annual returns? A. large company stocks B. long-term corporate bonds C. long-term government bonds D. U.S. Treasury bills

A. large company stocks

Which one of the following assets has historically had the highest average annual return? A. large company stocks B. long-term corporate bonds C. long-term government bonds D. U.S. Treasury bills

A. large company stocks

The category of securities with the highest historical risk premium is A. small company stocks. B. small company corporate bonds. C. large company stocks. D. government bonds.

A. small company stocks.

Asset A B C D Annual return Yr. 1 5 % - 6 % 12 % 10 % Annual return Yr. 2 10 % 20 % -7 % - 10 % Annual return Yr. 3 15 % 2 % 17 % 20 % Annual return Yr. 4 4 % - 5 % 15 % - 15 % Annual return Yr. 5 10 % What is the average return for: What is the geometric return for: What is the standard deviation for: A B C D

A: __8.5_____ % A: __8.41_____ % A: __5.07_____ % B: __4.2_____ % B: __3.75_____ % B: __10.92_____ % C: ___9.25____ % C: __8.80_____ % C: ___11.03____ % D: __1.25_____ % D: __0.24_____ % D: ___16.52____ %

Alps Sector Dividend Dogs (SDOG) an ETF, had the following returns: 2013 2014 2015 2016 34.19% 14.99% -3.18% 22.48% What is the average return for SDOG? What is the geometric return for SDOG? What is the standard deviation for SDGO?

Arithmetic = 17.12% Geometric = 16.31% Standard Deviation = 15.67%

United Parcel Service (UPS) had the following Returns over the past 5 years 2012 2013 2014 2015 2016 3.85% 45.88% 8.35% -10.81% 22.37% What is the average return for UPS? What is the geometric return for UPS? What is the standard deviation for SDGO?

Arithmetic Average= 13.93% Geometric Average= 12.37% Standard Deviation = 21.43%

Cecilia bought 100 shares of Minnesota Mining and Manufacturing in June, 1987 for $42 a share for a total investment of $4,200. She sold the shares in June, 1996 for $9,960. What is Cecilia's annual rate of return on her investment? A. 10.6% B. 10% C. 11.2% D. 11%

B. 10%

If you invest 35% of your investment in MicroGap with an expected rate of return of 14 % and the remainder in Amgen with an expected rate of return of 8 %, the expected return on your portfolio is: A. 13.6% B. 10.1% C. 12.4% D. 11.5%

B. 10.1%

You purchased JM Smucker (SJM) two years ago. During that time the total return for SJM has been 21.47%. What is your annualized return? A. 9.75% B. 10.20% C. 11.25% D. 10.74%

B. 10.20%

WisdomTree U.S. Total Earnings Fund (EXT) returns for the past 5 years have been: 2013 2014 2015 2016 2017 34.95% 13.11 % -2.30 % 14.51 % 21.94 % What is the standard deviation? A. 11.55 % B. 13.60 % C. 11.16 % D. 12.01 %

B. 13.60 %

Bob purchases 100 shares of Disney (DIS) stock on October 26th, 2015 at $107.96 per share. Three years later on October 25, 2018, Bob sells the 100 shares for $113.28 per share. In addition, Bob received a dividend of Year 1 $1.42 per shareYear 2 $1.56 per shareYear 3 $1.68 per share What was Bob's annualized rate for the three years for Disney? A. 3.68 % B. 2.97 % C. 8.62 % D. 4.26 %

B. 2.97 %

Investment A has an expected return of 15% per year, while Investment B has an expected return of 12% per year. A rational investor will choose A. Investment A only if the standard deviation of returns for A is higher than the standard deviation of returns for B. B. Investment A if A and B are of equal risk. C. Investment A because of the higher expected return. D. Investment B because a lower return means lower risk.

B. Investment A if A and B are of equal risk.

The total risk of a portfolio can be measured by its ________________. A. weighted average of asset variances B. variance or the standard deviation of its returns C. combined return D. changes in the level of interest rates

B. variance or the standard deviation of its returns

If Stock A had a price of $120 at the beginning of the year, $150 at the end of the year and paid a $6 dividend during the year, what would be the annualized holding period return? A. 36% B. 30% C. 24% D. none of the above

B. 30%

Which of the following is NOT an example of market risk or systematic risk? A.Inflation B.Management risk C.Interest rate risk D.Recession

B.Management risk

Go to https://www.investopedia.com/university/beginneropens in a new tab, where there is an article on "Investing 101: Introduction." Read the article and explain what it says about risk tolerance.Which of the following statements best defines the term "risk tolerance"? A.A situation where a particular investor, either an individual or firm, decides to receive less of a return on their investment in exchange for less risk. B.The degree of uncertainty that an investor can handle in regard to a negative change in the value of his or her portfolio. C.A description of an investor who, when faced with two investments with a similar expected return (but different risks), will prefer the one with the lower risk. D.The chance that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment.

B.The degree of uncertainty that an investor can handle in regard to a negative change in the value of his or her portfolio.

If Cintas had a price of $92 at the beginning of the year, $83 at the end of the year and paid a $3 dividend during the year, what would be the annualized holding period return? A. -9.8% B. 6.52 % C. -6.52% D. none of the above

C. -6.52%

Assume that you have $330,000 invested in a stock that is returning 11.50%, $170,000 invested in a stock that is returning 22.75%, and $470,000 invested in a stock that is returning 10.25%. What is the expected return of your portfolio? A. 14.8% B. 15.6% C. 12.9% D. 18.3%

C. 12.9%

State of the Economy Stock W's ReturnRecession -30%Below Average - 2%Average 10%Above Average 18%Boom 40%Stock W's standard deviation of returns is A. 27.6% B. 14.2% C. 25.8% D. 24.9%

C. 25.8%

C. 8.2%

Which of the following investments is clearly preferred to the others for an investor who is not holding a well-diversified portfolio? Investment Average Return Standard Deviation A 18% 20% B 20% 20% C 20% 22% A. Investment A B. Cannot be determined with information regarding the risk-free rate of return. C. Investment B D. Investment C

C. Investment B

If you were to use the standard deviation as a measure of investment risk, which of the following has historically been the least risky investment? A. common stock of small firms B. common stock of large firms C. U.S. Treasury bills D. long-term government bonds

C. U.S. Treasury bills

The category of securities with the highest historical risk premium is A. small company corporate bonds. B. large company stocks. C. mid company stocks. D. government bonds.

C. mid company stocks.

Portfolio risk is comprised of: A. systematic and macroeconomic risk B. unsystematic and microeconomic risk C. systematic and unsystematic risk D. systematic and market risk

C. systematic and unsystematic risk

The total risk of a portfolio can be measured by its ________________. A. weighted average of asset variances B. changes in the level of interest rates C. variance or the standard deviation of its returns D. combined return

C. variance or the standard deviation of its returns

If you were to use the standard deviation as a measure of investment risk, which of the following has historically been the highest risk investment? A. long−term government bonds B. U.S. Treasury bills C. common stock of small firms D. common stock of large firms

C. common stock of small firms

Unsystematic risk is also known as: A. market risk B. non-diversifiable risk C. firm-specific risk D. macroeconomic risk

C. firm-specific risk

Financial risk occurs because _____________________ do no change when operating income rises or falls. A. tax expenses B. overhead expenses C. fixed interest expenses D. wage expenses

C. fixed interest expenses

The market risk premium is measured by: A.beta. B.standard deviation. C.market return less risk-free rate. D.T-bill rate.

C.market return less risk-free rate.

If Cintas had a price of $92 at the beginning of the year, $83 at the end of the year and paid a $3 dividend during the year, what would be the annualized holding period return? A. none of the above B. -9.8% C. 6.52 % D. -6.52%

D. -6.52%

Assume that an investment is forecasted to produce the following returns: · a 30% probability of a 12% return · a 50% probability of a 16% return · a 20% probability of a 19% return What is the expected percentage return this investment will produce? A. 33.3% B. 16.1% C. 9.5% D. 15.4%

D. 15.4%

WisdomTree U.S. Total Earnings Fund (EXT) returns for the past 5 years have been:2013 2014 2015 2016 201734.95% 13.11 % -2.30 % 14.51 % 21.94 % What is the average return? A. 15.84 % B. 16.00 % C. 14.85 % D. 16.44 %

D. 16.44 %

Joshua purchases 100 shares of Occidental Petroleum (OXY) stock on November 14, 2014 at $68.45 per share. Three years later on October 25, 2017, Joshua sells the 100 shares for $61.20 per share. In addition, Joshua received a dividend of Year 1 $ 2.94 per shareYear 2 $ 3.01 per shareYear 3 $ 3.05 per share What is the total rate of return for Joshua for the time that he invested in Occidental Petroleum? A. 3.68 % B. 8.62 % C. 4.26 % D. 2.56 %

D. 2.56 %

D. 35.6%

As you review two stocks, if Stock A has a standard deviation of 4% and expected returns of 9%, and Stock B has a standard deviation of 3% and returns of 1%, which stock is riskier? A. Stock B B. they are equally risky C. cannot determine from the information given D. Stock A

D. Stock A

Of the following different types of securities, which is typically considered most risky? A. long-term corporate bonds B. common stocks of large companies C. long-term government bonds D. common stocks of small companies

D. common stocks of small companies

Beginning with an investment in one company's securities, as we add securities of other companies to our portfolio, which type of risk declines? A. non-diversifiable risk B. systematic risk C. market risk D. unsystematic risk

D. unsystematic risk

Investment A has an expected return of 15% per year, while Investment B has an expected return of 12% per year. A rational investor will choose A. Investment A only if the standard deviation of returns for A is higher than the standard deviation of returns for B. B. Investment A because of the higher expected return. C. Investment B because a lower return means lower risk. D. Investment A if A and B are of equal risk.

D. Investment A if A and B are of equal risk.

Which of the following is not a component of the required rate of return? A. real risk-free rate of return B. inflation expectations C. risk premium D. appropriate discount rate

D. appropriate discount rate

The past five years Chevron (CVX) has paid the following dividends: 2012 2013 2014 2015 2016 $3.51 $3.90 $4.21 $4.28 $4.29 What has been the dividend growth for CVX over the past 5 years? What has been the dividend growth for CVX over the last 3 years?

Dividend growth for 5 years = 4.10% Dividend growth for 3 years = 0.63%

Stock W has an expected return of 12% with a standard deviation of 8%. If returns are normally distributed, then approximately two−thirds of the time the return on stock W will be A.between 4% and 20%. B.between −4% and 28%. C.between 8% and 12%.

Expected return +- standard deviation 12-8 12+8 A.between 4% and 20%

Most non-diversifiable risk can be eliminated by creating a portfolio of around 30 stocks. TRUE FALSE

FALSE

You are considering the three securities listed below. Stock A Stock B Stock C 2% -3% 5% 10% 8% 8% 15% 20% 12% a Calculate the average return for each security. b. Calculate the standard deviation of returns for each security.

Stock A 9% Stock B 8.3% Stock C 8.3% Stock A 6.6% Stock B 11.5% Stock C 3.5%

Given the information below, compute annualized returns Asset Purchase Current Price Income Time % annualized Price Price Received Period return A$20 $26 $ 2. 75 weeks

Total return = ($26 - 20) + $2 = $8 percentage return in decimal form = $8/$20 = 0.40 or 40% Annualized return = (1.40)1/(75/52) - 1 = 0.263 or 26.3%

A higher coefficient of variation indicates more risk per unit of return. True False

True

An all−stock portfolio is more risky than a portfolio consisting of all bonds. True False

True

Bad managerial judgments or unforeseen negative events that happen to a firm are defined as "company-specific," or "unsystematic," events, and their effects on investment risk can in theory be diversified away True False

True

Diversifying among different kinds of assets is called asset allocation. True False

True

Small company stocks have historically had higher average annual returns than large company stocks, and also a higher risk premium. True False

True

Small company stocks have historically had higher average annual returns than large company stocks, and also a higher risk premium. True False

True

The benefits of diversification occur as long as the investments in a portfolio are not perfectly positively correlated. True False

True

From the price data here, PERIOD JAZMAN SOLOMON 1 9 27 2 11 28 3 10 32 4 13 29, compute the holding-period returns for Jazman and Solomon for periods 2, 3 and 4. Hint: Calculate the holding-period return against the previous period. In other words, holding-period returns from period 1 to 2, from period 2 to 3 and from period 3 to 4. b. How would you interpret the meaning of a holding-period return?

a. From the price data in the table, compute the holding-period returns for Jazman for periods 2 through 4. The holding-period return in period 2 for Jazman is 22.22%. (Round to two decimal places.) Part 2 The holding-period return in period 3 for Jazman is −9.09%. (Round to two decimal places.) Part 3 The holding-period return in period 4 for Jazman is 30%. (Round to two decimal places.) Part 4 From the price data in the table, compute the holding-period returns for Solomon for periods 2 through 4. The holding-period return in period 2 for Solomon is 3.7%. (Round to two decimal places.) Part 5 The holding-period return in period 3 for Solomon is 14.29%. (Round to two decimal places.) Part 6 The holding-period return in period 4 for Solomon is −9.38%. (Round to two decimal places.) Part 7 b. Judge whether the statement is true or false: "The holding-period rate of return is the return an investor would receive from holding a security for a designated period of time." True

A higher coefficient of variation indicates more risk per unit of return. a. TRUE b. FALSE

a. TRUE

Because of differences in the expected returns on different investments, the standard deviation is not always an adequate measure of risk. However, the coefficient of variation adjusts for differences in expected returns and thus allows investors to make better comparisons of investments' stand-alone risk. a. TRUE b. FALSE

a. TRUE

In general, securities with higher historical standard deviations have provided higher returns. a. TRUE b. FALSE

a. TRUE

The coefficient of variation, calculated as the standard deviation of expected returns divided by the expected return, is a standardized measure of the risk per unit of expected return. a. TRUE b. FALSE

a. TRUE

The expected rate of return from an investment is equal to the expected cash flows divided by the initial investment. a. TRUE b. False

a. TRUE

Total risk equals systematic risk plus unsystematic risk. a. TRUE b. FALSE

a. TRUE

A boom economy, normal conditions, and recession all include the three scenarios that are found in the state of _______________. a. nature b. business risk c. expected risk d. financial risk

a. nature

The square root of the variance is also known as _____________________. a. standard deviation b. VAR c. acceptable variance d. arithmetic average return

a. standard deviation

A positive correlation ___________________________. a. is a statistical concept that relates movements in one set of returns to movements in another set over time. b. occurs when two time series tend to move in conjunction with each other. c. occurs when two time series tend to move in opposite directions. d. occurs when we invest in several different assets rather than just a single one.

b. occurs when two time series tend to move in conjunction with each other.

A rational investor will always prefer an investment with a lower standard deviation of returns, because such investments are less risky. a. TRUE b. FALSE

b. FALSE

The monthly (dollar) return equals the stock price at the end of the month minus the stock price at the beginning of the month plus ___________________________. a. percentage return b. dividends c. price changes d. a dividend of 4 cents

b. dividends

Securities prices change over time. Therefore, any change in price must reflect a change in ________________. a. asset prices b. expected cash flows, the discount rate, or both c. how to interpret market data d. overseas market conditions

b. expected cash flows, the discount rate, or both

What kind of portfolio contains all risky assets? a. human capital portfolio b. market portfolio c. beta portfolio d. capital asset portfolio

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