Chapter 11 Quiz test 3

A stock is expected to return 13 percent in an economic boom, 10 percent in a normal economy, and 3 percent in a recessionary economy. Which one of the following will lower the overall expected rate of return on this stock? -An increase in the probability of an economic boom -A decrease in the probability of a recession occurring -An increase in the rate of return for a normal economy -An increase in the rate of return in a recessionary economy -A decrease in the probability of an economic boom

a decrease in the probability of an economic boom

Systematic risk is defined as: -any risk that affects a large number of assets -the total risk of an individual security -the risk unique to a firm's management -diversifiable risk -asset-specific risk

any risk that affects a large number of assets

Which one of the following is the minimum required rate of return on a new investment that makes that investment attractive? -Risk-free rate -Expected return minus the risk-free rate -Market risk premium -Market rate of return -Cost of capital

cost of capital

The security market line is defined as a positively sloped straight line that displays the relationship between the: -risk premium and beta of a portfolio -systematic and unsystematic risks of a security -beta and standard deviation of a portfolio -nominal and real rates of return -expected return and beta of either a security or a portfolio

expected return and beta of either a security or a portfolio

Which one of these represents systematic risk? -Surprise firing of a firm's chief financial officer -Increase in consumption created by a reduction in personal tax rates -Major layoff by a regional manufacturer of power boats -Product recall by one manufacturer -Closure of a major retail chain of stores

increase in consumption created by a reduction in personal tax rates

The systematic risk principle states that the expected return on a risky asset depends only on the asset's ___ risk. -diversifiable -asset-specific -unique -unsystematic -market

market

Unsystematic risk can be defined by all of the following except: -market risk -asset-specific risk -diversifiable risk -unique risk -unrewarded risk

market risk

The slope of the security market line represents the: -market rate of return -market risk premium -risk premium on an individual asset -beta coefficient -risk-free rate

market risk premium

Stock A comprises 28 percent of Susan's portfolio. Which one of the following terms applies to the 28 percent? -Portfolio expected return -Portfolio weight -Portfolio standard deviation -Portfolio beta -Portfolio variance

portfolio weight

Which one of the following is the best example of an announcement that is most apt to result in an unexpected return? -The verification by senior management that the firm is being acquired as had been rumored -Statement by a firm that it has just discovered a manufacturing defect and is recalling its product -A news bulletin that the anticipated layoffs by a firm will occur as expected on December 1 -Announcement that the CFO of the firm is retiring June 1 as previously announced -Announcement that a firm will continue its practice of paying a $3 a share annual dividend

statement by a firm that it has just discovered a manufacturing defect and is recalling its product