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Which one of the following is the type of risk that affects a large number of assets? A. uniqueB. systematicC. asset-specificD. unsystematicE. firm-specific B. systematic
Which one of the following is the type of risk that only affects either a single firm or just a small number of firms? A. unexpectedB. marketC. systematicD. unsystematicE. expected D. unsystematic
According to the systematic risk principle, the reward for bearing risk is based on which one of the following types of risk? A. unsystematicB. firm specificC. expectedD. systematicE. diversifiable D. systematic
Which one of the following measures systematic risk? A. betaB. alphaC. varianceD. standard deviationE. correlation coefficient A. beta
The security market line depicts the graphical relationship between which two of the following?I. expected returnII. surprise returnIII. systematic riskIV. unsystematic risk A. I and IIIB. I and IVC. II and III A. I and III
Which one of the following is expressed as "E(RM) – Rf"? A. market risk premiumB. individual security risk premiumC. real rate of return A. market risk premium
Which one of the following is the theory which states that the value of a security is dependent upon the pure time value of money, the reward for bearing systematic risk, and the amount of sy? A. reward-to-risk theoryB. capital asset pricing model B. capital asset pricing model
Which one of the following terms is the measure of the tendency of two things to move or vary together? A. varianceB. squared deviationC. standard deviationD. alphaE. covariance E. covariance
Retail Specialties just announced that its Chief Operating Officer is retiring at the end of this month. This announcement will cause the firm's stock price to: A. remain constant.B. decrease.C. either increase, decrease, or remain constant. C. either increase, decrease, or remain constant.
Which one of the following is the best example of a risk associated with stock ownership? A. The stock paid a regular dividendB. The firm's net income decreased by 4 percentC. One of the firm's patent applications was unexpectedly rejected. C. One of the firm's patent applications was unexpectedly rejected.
Which one of the following announcements is most apt to cause the price of a firm's stock to increase? A. The firm met its quarterly earnings forecast.B. An unpopular CEO unexpectedly announced he is resigning effective immediately. B. An unpopular CEO unexpectedly announced he is resigning effective immediately.
Which one of the following terms is another name for systematic risk? A. unique riskB. firm riskC. market riskD. asset-specific riskE. diversifiable risk C. market risk
Which one of the following is the best example of systematic risk? A. there is a shortage of nursesB. a fire destroys a warehouseC. gas prices rise sharplyD. the cost of sugar increases C. gas prices rise sharply
Which one of the following statements applies to unsystematic risk? A. It can be eliminated through portfolio diversification.B. It is also called market risk.C. It is a type of risk that applies to most, if not all, securities. A. It can be eliminated through portfolio diversification.
Which one of the following is the best example of unsystematic risk? A. decrease in company salesB. increase in market interest ratesC. change in corporate tax ratesD. increase in inflation A. decrease in company sales
Which one of the following qualifies as diversifiable risk? A. market riskB. systematic risk associated with an individual securityC. market crashD. the systematic portion of an expected returnE. the unsystematic portion of an unexpected E. the unsystematic portion of an unexpected return
Which one of the following betas represents the greatest level of systematic risk? A. .05B. .68C. 1.00D. 1.19E. 1.27 E. 1.27
A stock with which one of the following betas has an expected return that most resembles the overall market expected rate of return? A. .33B. .74C. .99D. 1.06E. 1.22 C. .99
What is the beta of a risk-free security? A. .00B. .50C. 1.00D. 1.50E. 2.00 A. .00
Which one of the following stocks has the highest expected risk premium? stock A, stdev=14%, beta=1.36A. AB. BC. CD. DE. E A. A
Of the following, Stock _____ has the greatest level of total risk and Stock _____ has the highest risk premium. stock a beta =1.09, stdev=11%A. A; BB. B; EC. C; DD. D; CE. C; E D. D; C
A portfolio beta is computed as which one of the following? A. weighted averageB. arithmetic averageC. geometric averageD. correlated valueE. covariance value A. weighted average
You own a portfolio which is invested equally in two stocks and a risk-free security. The stock betas are .89 for Stock A and 1.26 for Stock B.B. increasing the amountC. replacing Stock A with a security D. increasing the weight of Stock A D. increasing the weight of Stock A and decreasing the weight of the risk-free security
A portfolio of securities has a beta of 1.14. Given this, you know that: D. the portfolio has 14 percent more risk than a risk-free security.E. the expected return on the portfolio is greater than the expected market return. E. the expected return on the portfolio is greater than the expected market return.
You own three stocks which have betas of 1.16, 1.34, and 1.02. You would like to add a fourth security such that your portfolio beta will match tha A. must have a beta of 1.0.B. must have a beta of zero.C. could be a U.S. Treasury bill. C. could be a U.S. Treasury bill.
The amount of risk premium allocated to Security A is dependent upon which one of the following? A. unsystematic risk associated only with Security AE. systematic risk associated with Security A E. systematic risk associated with Security A
What is the beta of an average asset? A. 0B. > 0 but < 1C. < 1D. 1E. > 1 D. 1
All else held constant, which of the following will increase the expected return on a security based on CAPM? eds the risk-free rate and both values are positive. Also assume the beta exceeds 1.0.C. I, II, and IV onlyD. II, III, and IV only D. II, III, and IV only
The slope of the security market line is equal to the: A. market risk premium.B. risk-free rate of return.C. market rate of return. A. market risk premium.
Where will a security plot in relation to the security market line (SML) if it has a beta of 1.1 and is overvalued? A. to the right of the overall market and above the SMLB. to the right of the overall market and below the SML B. to the right of the overall market and below the SML
Where will a security plot in relation to the security market line (SML) if it is considered to be a good purchase because it is underpriced? A. above the SMLB. either on or above the SMLC. on the SML A. above the SML
According to the capital asset pricing model, which of the following will increase the expected rate of return on a security that has a beta that is less than that of the market? A. I and III onlyB. II and III only A. I and III only
Which one of the following has the highest expected risk premium? A. stock portfolio with a beta of 1.06B. U.S. Treasury billC. individual stock with a beta of 1.46 C. individual stock with a beta of 1.46
Which one of the following must be equal for two individual securities with differing betas if those securities are correctly priced according to the capital asset pricing model? B. rate of returnC. betaD. risk premiumE. reward-to-risk ratio E. reward-to-risk ratio
Stocks D, E, and F have actual reward-to-risk ratios of 7.1, 6.8, and 7.4, respectively. Given this, you know for certain that: D. stock F is riskier than stock D.E. at least two of the securities are mispriced. E. at least two of the securities are mispriced.
Which one of the following will increase the slope of the security market line? Assume all else constant. A. increasing the beta of an efficiently-priced portfolioB. increasing the risk-free rateC. increasing the market risk premium C. increasing the market risk premium
Which two of the following determine how sensitive a security is relative to movements in the overall market?I. the standard deviation II. correlation betweeIII. the volatilityIV. the amount unsystematicB. I and IV onlyC. II and III only C. II and III only
Which of the following are needed to compute the beta of an individual security?I. average return on the II. standard deviatioIII. returns on the security IV. correlation of the securiC. II and III onlyD. II and IV only D. II and IV only
A security has a zero covariance with the market. This means that: C. the security is a risk-free security.D. there is no identifiable relationship between the return on the security and that of the market. D. there is no identifiable relationship between the return on the security and that of the market.
Which of the following will affect the beta value of an individual security?I. interval of time frequencyII. length of the time III. particular time period IV. choice of index used aD. II, III, and IV onlyE. I, II, III, and IV E. I, II, III, and IV
Which one of the following is most commonly used as the measure of the overall market rate of return? A. DJIAB. S&P 500C. NASDAQ 100D. Wilshire 5000E. Wilshire 3000 B. S&P 500
Which one of the following statements is true? A. Risk and return are inversely related.B. Investors are compensatedC. The beta of a portfolio D. How a security affecE. Investing has two dimensions: risk and return. E. Investing has two dimensions: risk and return.
Which of the following correctly identifies the factors included in the Fama-French three-factor model? D. price-earnings ratios, beta, and book-to-market ratiosE. beta, company size, and book-to-market ratios E. beta, company size, and book-to-market ratios
Which one of the following combinations will tend to produce the highest rate of return according to FamaC. small market capitalization and high bookD. small market capitalization and a bookE. small market capitalization and a low book C. small market capitalization and high book
Phil realized a total return of 13.2 percent which is less than his expected return of 14.4 percent. What is the amount of his unexpected return? A. -1.2 percentB. -0.6 percentC. 0.6 percentD. 1.2 percentE. 1.3 percent A. -1.2 percent
Brooke invested $4,500 in the stock market with the expectation of earning 6.25 percent. She actually earned 7.15 percent for the year. What is the amount of her unexpected return? A. -1.2 percentB. -0.6 percentC. 0.9 percent C. 0.9 percent
Reed Plastics just announced the earnings per share for the quarter just ended were $.45 a share. Analysts were expecting $.51. What is the amount of the surprise portion of the announcement? A. -$.12B. -$.06C. $.06D. $.00 B. -$.06
The risk-free rate is 3.0 percent and the expected return on the market is 9 percent. Stock A has a beta of 1.20. For a given year, Stock A returned 12.5 percent while the market returned 9.75 percent. A. 0.80; 1.30B. 0.90; 1.40 B. 0.90; 1.40
The risk-free rate is 3.4 percent and the expected return on the market is 10.8 percent. Stock A has a beta of 1.18. For a given year, stock A returned 13.6 percent while the market returned 11.8 percent. B. 1.145; 0.126C. 1.180; 0.288 C. 1.180; 0.288
A portfolio is comprised of two stocks. Stock A comprises 65 percent of the portfolio and has a beta of 1.31. Stock B has a beta of .98. What is the portfolio beta? A. .98 B. 1.03 C. 1.08 D. 1.19 E. 1.22 D. 1.19
A portfolio consists of two stocks and has a beta of 1.07. The first stock has a beta of 1.48 and comprises 38 percent of the portfolio. What is the beta of the second stock? A. .41B. .66C. .82D. 1.28E. 1.35 C. .82
What is the beta of a portfolio which consists of the following?security a=5000$ invested, beta=.79A. 1.01B. 1.24C. 1.26D. 1.29E. 1.32 E. 1.32
What is the beta of a portfolio which consists of the following? security a=2000$ invested, beta=1.38A. 1.18B. 1.22C. 1.23D. 1.32E. 1.37 D. 1.32
A portfolio consists of one risky asset and one risk-free asset. The risky asset has an expected return of 11.2 percent and a beta of 1.39. of 3.4 percent. risk-free asset if the portfolio beta is 1.07? A. 16 percentB. 23 percent B. 23 percent
The following portfolio has an expected return of _____ percent and a beta of _____. security x , amount invested=$17,000, E(R)=14.2%, beta=.98 A. 10.53; 1.13B. 10.99; 1.11C. 11.03; 1.28 B. 10.99; 1.11
The following portfolio has an expected return of _____ percent and a beta of _____. a invested =$26,000, E(R)=16.2%, beta=1.47 A. 12.45; 1.38B. 12.84; 1.39C. 13.39; 1.23D. 13.39; 1.40E. 13.45; 1.32 B. 12.84; 1.39
Laura has one risk-free asset and one risky stock in her portfolio. The risk-free asset has an expected return of 3.2 percent. The risky asset has a beta of 1.3 and the portfolio beta is .975? C. 10.73 percentD. 11.98 percent D. 11.98 percent
A risky asset has a beta of .90 and an expected return of 7.4 percent. What is the reward-to-risk ratio if the risk-free rate is 2.69 percent? A. 4.04 percentB. 5.23 percentC. 6.51 percentD. 8.41 percent B. 5.23 percent
The reward-to-risk ratio is 6.8 percent and the risk-free rate is 5.3 percent. What is the expected return on a risky asset if the beta of that asset is 1.03? B. 12.00 percentC. 12.02 percentD. 12.07 percentE. 12.30 percent E. 12.30 percent
A risky asset has a beta of 1.40 and an expected return of 17.6 percent. What is the risk-free rate if the risk-to-reward ratio is 8.4 percent? A. 2.74 percentB. 4.03 percentC. 4.33 percentD. 5.32 percentE. 5.84 percent E. 5.84 percent
Stock A is a risky asset that has a beta of 1.4 and an expected return of 13.2 percent. Stock B is also a risky asset and has a beta of 1.25. return on stock B? A. 11.90 percentB. 12.11 percentC. 12.29 percentD. 12.38 percent D. 12.38 percent
Stock X has a beta of .95 and an expected return of 10.8 percent. Stock Y has a beta of 1.2 and an expected return of 13.1 percent. tock X and stock Y are correctly priced? A. 1.10 percent B. 1.20 percent C. 2.06 percent C. 2.06 percent
The stock of Healthy Eating, Inc., has a beta of .88. The risk-free rate is 3.8 percent and the market return is 9.6 percent. What is the expected return on Healthy Eating's stock? A. 6.25 percentB. 6.07 percentC. 8.90 percent C. 8.90 percent
The common stock of Industrial Technologies has an expected return of 12.4 percent. The market return is 9.2 percent and the risk-free return is 3.87 percent. What is the stock's beta? A. 0.42 B. 1.00 C. 1.32 D. 1.42 E. 1.60 E. 1.60
A stock has an expected return of 14.59 percent and a beta of 1.35. What is the risk-free rate if the market rate is 12.7 percent? A. 6.48 percentB. 6.92 percentC. 7.01 percentD. 7.30 percentE. 7.90 percent D. 7.30 percent
Farm Tractors, Inc., stock has a beta of 1.12 and an expected return of 12.8 percent. The risk-free rate is 3.84 percent. What is the market rate of return? A. 6.67 percentB. 8.90 percentC. 9.08 percentD. 11.84 percent D. 11.84 percent
Wilson Farms' stock has a beta of .84 and an expected return of 7.8 percent. The risk-free rate is 2.6 percent and the market risk premium is 6 percent. A. undervalued; 7.34B. undervalued; 7.49C. undervalued; 7.64 C. undervalued; 7.64
Home Interior's stock has an expected return of 13.2 percent and a beta of 1.28. The market return is 10.7 percent and the risk-free rate is 2.8 percent.B. slightly overvalued; 12.91C. priced correctly; 12.89D. slightly undervalued; 12.91 D. slightly undervalued; 12.91
A stock has a beta of 1.58 and an expected return of 16.2 percent. The risk-free rate is 3.8 percent. What is the market risk premium? A. 7.85 percentB. 10.01 percentC. 11.72 percentD. 12.50 percent A. 7.85 percent
The risk-free rate is 4.1 percent, the market rate is 13.2 percent, and the expected return on a stock is 15.84 percent. What is the beta of the stock? A. .52B. .81C. 1.13D. 1.19E. 1.29 E. 1.29
The market has an expected return of 11.4 percent and a risky asset with a beta of 1.18 has an expected return of 13 percent. Based on this information, what is the pure time value of money? B. 1.90 percentC. 2.38 percentD. 2.51 percent D. 2.51 percent
Dinner Foods stock has a beta of 1.45 and an expected return of 13.43 percent. Edwards' Meals stock has a beta of .95 and an expected return of 10.27 percent. A. 4.02; 11.53B. 4.09; 12.35C. 4.10; 11.53D. 4.27; 10.59 D. 4.27; 10.59
What is the covariance of security A to the market given the following information? year=1, sec a return=18%, market return=10%A. 75.0B. 80.1C. 83.8D. 87.0E. 91.1 A. 75.0
What is the covariance of security A to the market given the following information? R(a)=20.00, Rm=17A. 507.9B. 514.1C. 517.5D. 523.5 D. 523.5
What is the covariance of security A to the market given the following information? security a= 1%, market returns=-6%A. 23.14B. 29.88C. 48.83D. 99.18 C. 48.83
A risky security has a variance of .036190 and a covariance with the market of .0222. The variance of the market is .01975. What is the correlation of the risky security to the market? A. .51B. .65C. .72D. .83 D. .83
Uptown Markets stock has a standard deviation of 16.8 percent and a covariance with the market of .0178. The market has a standard deviation of 13.6 percent. A. .74B. .78C. .87D. .89 B. .78
Western Exports stock has a standard deviation of 15.6 percent and a covariance with the market of .0150. The market has a standard deviation of 13.7 percent. A. .58B. .61C. .68D. .70 D. .70
The common stock of Blasco Books has a standard deviation of 16.4 percent as compared to the market standard deviation of 12.7 percent. The covariance of this stock with the market is .0217. A. .96B. 1.05C. 1.07D. 1.35 D. 1.35
A stock has a standard deviation of 25.4 percent and a covariance with the market of .0160. The market has a standard deviation of 12.2 percent. What is the beta of this stock? A. .294B. .572C. .926D. .973E. 1.075 E. 1.075
The market has a standard deviation of 10.8 percent (0.108) while a risky security has a standard deviation of 22.5 (0.225) percent. The covariance of the stock with the market is .0149. A. 1.09B. 1.11C. 1.15D. 1.19E. 1.28 E. 1.28

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