Finance 2

19 terms by mhenr12 

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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?

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?

portfolio weight

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

systematic

Question 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?

unsystematic

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

systematic risk principle

Question 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?

beta

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.

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

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

Question The standard deviation of a portfolio:

can be less than the standard deviation of the least risky security in the
portfolio.

Which one of the following statements is correct concerning a portfolio of 20
securities with multiple states of the economy when both the securities and the economic
states have unequal weights?

Given both the unequal weights of the securities and the economic states,
an investor might be able to create a portfolio that has an expected
standard deviation of zero.

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

investors panic causing security prices around the globe to fall precipitously

Question Unsystematic risk:

can be effectively eliminated by portfolio diversification.

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

consumer spending on entertainment decreased nationally

Question Systematic risk is measured by:

beta.

Question Which one of the following statements is correct concerning a portfolio beta?

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

Question The systematic risk of the market is measured by:

a beta of 1.0.

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

standard deviation; beta

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