# Finance Ch13 non-math ?s

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Finance 3715 chapter 13 non math questions

expected return

systematic

unsystematic

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

systematic risk principle

beta

### 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

### 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.

risk-free rate.

total

### 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. 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.
D. I, II, and III only

### Which one of the following is an example of systematic risk?

. investors panic causing security prices around the globe to fall precipitously

### nsystematic risk can be effectively eliminated by _______

portfolio diversification.

### Which one of the following is an example of unsystematic risk?

consumer spending on entertainment decreased nationally

### . Which one of the following statements is correct concerning unsystematic risk?

Eliminating unsystematic risk is the responsibility of the individual investor.

### Which of the following statements are correct concerning diversifiable risks?I. Diversifiable risks can be essentially eliminated by investing in thirty unrelated securities. II. There is no reward for accepting diversifiable risks. III. Diversifiable risks are generally associated with an individual firm or industry. IV. Beta measures diversifiable risk.

I. Diversifiable risks can be essentially eliminated by investing in thirty unrelated securities.
II. There is no reward for accepting diversifiable risks.
III. Diversifiable risks are generally associated with an individual firm or industry.
D. I, II and III only

beta

### Which one of the following statements is correct concerning a portfolio beta? A. Portfolio betas range between -1.0 and +1.0. B. A portfolio beta is a weighted average of the betas of the individual securities contained in the portfolio. C. A portfolio beta cannot be computed from the betas of the individual securities comprising the portfolio because some risk is eliminated via diversification. D. A portfolio of U.S. Treasury bills will have a beta of +1.0. E. The beta of a market portfolio is equal to zero.

B. A portfolio beta is a weighted average of the betas of the individual securities contained in the portfolio.

a beta of 1.0.

### Total risk is measured by _____ and systematic risk is measured by _____.

standard deviation; beta

Example: