FIN 300 Ch. 12 & 13 Practice (Exam 3)

Which one of the following will be constant for all securities if the market is efficient and securities are priced fairly?

Reward-to-risk ratio

The systematic risk of the market is measured by a:

beta of 1

The primary purpose of portfolio diversification is to:

eliminate asset-specific risk.

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

security market line

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

Which of the following yields on a stock can be negative?

Capital gains yield and total return

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

Market risk premium

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.

The intercept point of the security market line is the rate of return which corresponds to:

the risk-free rate.