5 Written questions
5 Matching questions
- 60. If an investor does not diversify their portfolio and instead puts all of their money in one stock, the appropriate measure of security risk for that investor is the
a. Stock's standard deviation
b. Variance of the market
c. Stock's beta
d. Covariance with the market index
- 10. Asset A has an expected return of 20% and a standard deviation of 25%. The risk free rate is 10%. What is the reward-to-variability ratio?
- 61. Which of the following provides the best example of a systematic risk event?
a. A strike by union workers hurts a firm's quarterly earnings
b. Mad Cow disease in Montana hurts local ranchers and buyers of beef
c. The Federal Reserve increases interest rates 50 basis points
d. A senior executive at a firm embezzles $10 million and escapes to South America
- 38. The standard deviation of the returns on the optimal risky portfolio is __________.
- 21. Suppose that a stock portfolio and a bond portfolio have a zero correlation. This means that
a. The returns on the stock and bond portfolio tend to move inversely
b. The returns on the stock and bond portfolio tend to vary independently of each other
c. The returns on the stock and bond portfolio tend to move together
d. The covariance of the stock and bond portfolio will be positive
- a A. Stock's standard deviation
- b C. The Federal Reserve increases interest rates 50 basis points
- c B. The returns on the stock and bond portfolio tend to vary independently of each other
- d A. .40
- e C. 21.4%
5 Multiple choice questions
- C. Average return
- B. 0.75
- B. 73%
- A. Asset allocation, stock selection
- C. Correlation coefficient between ACE and the market has risen
5 True/False questions
25. Rational risk-averse investors will always prefer portfolios ______________.
a. Located on the efficient frontier to those located on the capital market line
b. Located on the capital market line to those located on the efficient frontier
c. At or near the minimum variance point on the efficient frontier
d. That are risk-free to all other asset choices → D. Beta
46. Stock A has a beta of 1.2 and Stock B has a beta of 1. The returns of Stock A are ______ sensitive to changes in the market as the returns of Stock B.
a. 20% more
b. Slightly more
c. 20% less
d. Slightly less → A. 20% more
42. A measure of the riskiness of an asset held in isolation is _____________.
b. Standard deviation
d. Semi-variance → A. Its returns are negatively correlated with market index returns
69. Decreasing the number of stocks in a portfolio from 50 to 10 would likely __________________________.
a. Increase the systematic risk of the portfolio
b. Increase the unsystematic risk of the portfolio
c. Increase the return of the portfolio
d. Decrease the variation in returns the investor faces in any one year → B. Increase the unsystematic risk of the portfolio
86. Which stock is riskier to a non-diversified investor who puts all his money in only one of these stocks?
a. Stock A is riskier
b. Stock B is riskier
c. Both stocks are equally risky
d. You cannot tell from the information given → B. Stock B is riskier