Question 1

Systematic risk is considered important because ________________________.

Accepted Answer

A)   It is needed in order to measure the total risk of an asset.
B)   The risk premium depends only on this type of risk.
C)   The market does not provide a reward for this type of risk.
D)   The risk premium depends on both systematic and unsystematic risk.
E)   Investors are willing to pay more for stocks with high systematic risk components.

Question 2

If the market is efficient and securities are priced fairly then the _____ will be constant for all securities.

Accepted Answer

A)   Systematic risk.
B)   Standard deviation.
C)   Reward-to-risk ratio.
D)   Beta.
E)   Risk premium.

Question 3

Which one of the following portfolios should have the most systematic risk?

Accepted Answer

A)   50% invested in Treasury bills and 50% in a market index fund.
B)   20% invested in Treasury bills and 80% invested in a stock with a beta of.80.
C)   10% invested in a stock with a beta of 1.0 and 90% invested in a stock with a beta of 1.40.
D)   100% invested in a mutual fund which mimics the overall market.
E)   100% invested in Treasury bills.

Question 4

What is the standard deviation of the returns on a stock given the following information?

Accepted Answer

A)   4.23%
B)   5.98%
C)   6.38%
D)   6.60%
E)   7.05%

Question 5

Provide a graphical representation of the opportunity sets of two stocks.

Accepted Answer

The graph should clo...

Question 6

Diversifiable risks can be essentially eliminated by investing in several unrelated securities.

Accepted Answer

A) True 
 B)False

Question 7

You would like to combine a risky stock with a beta of 1.5 with Treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market. What percentage of the portfolio should be invested in Treasury bills?

Accepted Answer

A)   .25
B)   .33
C)   .50
D)   .67
E)   .75

Question 8

Which one of the following is an example of diversifiable risk?

Accepted Answer

A)   The price of electricity just increased.
B)   The employees of Textile, Inc. just voted to go on strike.
C)   The government just imposed new safety standards for all employees.
D)   The government just lowered corporate income tax rates.
E)   The Workers Compensation Premiums just increased nationwide.

Question 9

Standard deviation is needed to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset.

Accepted Answer

A) True 
 B)False

Question 10

What is the standard deviation of the returns on a stock given the following information?

Accepted Answer

A)   5.80%
B)   7.34%
C)   8.38%
D)   9.15%
E)   9.87%

Question 11

Using the Capital Asset Pricing Model (CAPM), a decrease in the risk premium will increase the expected rate of return on an individual security. Assume that the security's beta, the risk-free rate of return, and the market rate of return are all positive.

Accepted Answer

A) True 
 B)False

Question 12

You recently purchased a stock that is expected to earn 19% in a booming economy, 11% in a normal economy and lose 15% in a recessionary economy. There is a 20% probability of a boom, a 65% chance of a normal economy, and a 15% chance of a recession. What is your expected rate of return on this stock?

Accepted Answer

A)   6.8%
B)   7.4%
C)   8.7%
D)   11.6%
E)   13.2%

Question 13

Provide a definition for portfolio weights.

Accepted Answer

Percentage of a port...

Question 14

The risk premium increases as the non-diversifiable risk increases.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A)   The price of lumber declines sharply.
B)   Airline pilots go on strike.
C)   The Bank of Canada increases interest rates.
D)   A blizzard hits St. John's.
E)   People become diet conscious and avoid fast food restaurants.

Question 16

Standard deviation measures _____ risk.

Accepted Answer

A)   Total.
B)   Nondiversifiable.
C)   Unsystematic.
D)   Systematic.
E)   Economic.

Question 17

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

Accepted Answer

A)   The risk-free rate of return.
B)   The market rate of return.
C)   A value of zero.
D)   A value of 1.0.
E)   The beta of the market.

Question 18

Which of the following is correct?

Accepted Answer

A)   Security Z has the greatest total risk because it has the largest standard deviation.
B)   Security X has the greatest total risk because it has the largest beta.
C)   Security X has the greatest diversifiable risk because it has the largest beta.
D)   Security Y has the lowest total risk because it has the lowest beta.
E)   An equally-weighted portfolio of XYZ will have the same systematic risk as the market portfolio.

Question 19

Latest unemployment figures increased, as expected is considered an example of unsystematic risk.

Accepted Answer

A) True 
 B)False

Question 20

Explain why in a highly competitive market all stocks should plot on the same security market line.

Accepted Answer

The security market line for all stocks ...

Exam 13: Return, Risk, and the Security Market Line

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

Correct Answer
verified

You would like to combine a risky stock with a beta of 1.5 with Treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market. What percentage of the portfolio should be invested in Treasury bills?

Correct Answer
verified

Which one of the following portfolios should have the most systematic risk?

Correct Answer
verified

Explain why in a highly competitive market all stocks should plot on the same security market line.

Correct Answer
verified
The security market line for all stocks ...
View Answer

Provide a definition for portfolio weights.

Correct Answer
verified
Percentage of a port...
View Answer

Diversifiable risks can be essentially eliminated by investing in several unrelated securities.

Correct Answer
verified

Provide a graphical representation of the opportunity sets of two stocks.

Correct Answer
verified
The graph should clo...
View Answer

The risk premium increases as the non-diversifiable risk increases.

Correct Answer
verified

Standard deviation measures _____ risk.

Correct Answer
verified

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

Latest unemployment figures increased, as expected is considered an example of unsystematic risk.

Correct Answer
verified

What is the standard deviation of the returns on a stock given the following information?

Correct Answer
verified

Standard deviation is needed to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset.

Correct Answer
verified

Using the Capital Asset Pricing Model (CAPM), a decrease in the risk premium will increase the expected rate of return on an individual security. Assume that the security's beta, the risk-free rate of return, and the market rate of return are all positive.

Correct Answer
verified

Systematic risk is considered important because ________________________.

Correct Answer
verified

Which one of the following is an example of diversifiable risk?

Correct Answer
verified

What is the standard deviation of the returns on a stock given the following information?

Correct Answer
verified

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

Correct Answer
verified

If the market is efficient and securities are priced fairly then the _____ will be constant for all securities.

Correct Answer
verified

Exam 13: Return, Risk, and the Security Market Line

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

Correct AnswerverifiedShow Answer

You would like to combine a risky stock with a beta of 1.5 with Treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market. What percentage of the portfolio should be invested in Treasury bills?

Correct AnswerverifiedShow Answer

Which one of the following portfolios should have the most systematic risk?

Correct AnswerverifiedShow Answer

Explain why in a highly competitive market all stocks should plot on the same security market line.

Correct AnswerverifiedThe security market line for all stocks ...View AnswerShow Answer

Provide a definition for portfolio weights.

Correct AnswerverifiedPercentage of a port...View AnswerShow Answer

Diversifiable risks can be essentially eliminated by investing in several unrelated securities.

Correct AnswerverifiedShow Answer

Provide a graphical representation of the opportunity sets of two stocks.

Correct AnswerverifiedThe graph should clo...View AnswerShow Answer

The risk premium increases as the non-diversifiable risk increases.

Correct AnswerverifiedShow Answer

Standard deviation measures _____ risk.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Latest unemployment figures increased, as expected is considered an example of unsystematic risk.

Correct AnswerverifiedShow Answer

What is the standard deviation of the returns on a stock given the following information?

Correct AnswerverifiedShow Answer

Standard deviation is needed to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset.

Correct AnswerverifiedShow Answer

Using the Capital Asset Pricing Model (CAPM), a decrease in the risk premium will increase the expected rate of return on an individual security. Assume that the security's beta, the risk-free rate of return, and the market rate of return are all positive.

Correct AnswerverifiedShow Answer

Systematic risk is considered important because ________________________.

Correct AnswerverifiedShow Answer

Which one of the following is an example of diversifiable risk?

Correct AnswerverifiedShow Answer

What is the standard deviation of the returns on a stock given the following information?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the market is efficient and securities are priced fairly then the _____ will be constant for all securities.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The security market line for all stocks ...
View Answer

Correct Answer
verified
Percentage of a port...
View Answer

Correct Answer
verified

Correct Answer
verified
The graph should clo...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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