File: Ch.11, Chapter 11: Common Stocks: Analysis and Strategy,
Multiple Choice Questions
1. A general consensus of analysts is that a typical investor should have between ___
and ______ percent of his/her portfolio in international markets.
a. 5: 10
b. 10: 20
c. 20: 30
d. 30: 40
Ans: b
Difficulty: Moderate
Ref: A Global Perspective
2. For adequately diversified common stock portfolios, market effects often account for
-------- percent and more of the variability of the portfolio’s return.
a. 60
b. 70
c. 80
d. 90
Ans: d
Difficulty: Moderate
Ref: The Impact of the Overall Market on Stocks
3. From 1989 to April 2003, the Japanese stock market lost what percent of its
value?
a. 50
b. 60
c. 70
d. 80
Ans: d
Difficulty: Moderate
Ref: The Impact of the Overall Market on Stocks
4. Which of the following is TRUE regarding fluctuations in both individual stock
prices and portfolios of stocks?
a. aggregate market movements are the largest single factor explaining these
fluctuations
b. beta is the largest single factor explaining these fluctuations
c. standard deviation of returns is the largest single factor explaining these
Chapter Eleven 135
Common Stocks: Analysis and Strategy
, fluctuations
d. financial risk is the largest single factor explaining these fluctuations
Ans: a
Difficulty: Moderate
Ref: The Impact of the Overall Market on Stocks
5. The required rate of return for a common stock is defined as the:
a. expected return given an assumed set of probabilities and expected cash flows on
the stock.
b. maximum expected return based on estimates of expected cashflows from the
stock.
c. minimum expected return necessary to induce an investor to purchase the stock.
expected return after evaluation of the risk on the stock has been taken.
Ans: c
Difficulty: Easy
Ref: The Impact of the Overall Market on Stocks
6. The -------------- provides investors with a method of calculating a required
return for a stock.
a. dividend discount model
b. risk-free rate
c. Fisher model
d. Capital Asset Pricing Model
Ans: d
Difficulty: Moderate
Ref: The Impact of the Overall Market on Stocks
7. A bear market is one characterized by a decline of:
a. 10% or more.
b. 15% or more.
c. 20% or more.
d. 25% or more.
Ans: c
Difficulty: Moderate
Ref: The Impact of the Overall Market on Stocks
8. Individual investors consider the investment decision:
a. based on market and economic conditions as consisting of asset allocation.
b. based on market and economic conditions as consisting of asset allocation and
security selection.
c. based on objectives, constraints, and preferences, as consisting of asset allocation.
Chapter Eleven 136
Common Stocks: Analysis and Strategy
Multiple Choice Questions
1. A general consensus of analysts is that a typical investor should have between ___
and ______ percent of his/her portfolio in international markets.
a. 5: 10
b. 10: 20
c. 20: 30
d. 30: 40
Ans: b
Difficulty: Moderate
Ref: A Global Perspective
2. For adequately diversified common stock portfolios, market effects often account for
-------- percent and more of the variability of the portfolio’s return.
a. 60
b. 70
c. 80
d. 90
Ans: d
Difficulty: Moderate
Ref: The Impact of the Overall Market on Stocks
3. From 1989 to April 2003, the Japanese stock market lost what percent of its
value?
a. 50
b. 60
c. 70
d. 80
Ans: d
Difficulty: Moderate
Ref: The Impact of the Overall Market on Stocks
4. Which of the following is TRUE regarding fluctuations in both individual stock
prices and portfolios of stocks?
a. aggregate market movements are the largest single factor explaining these
fluctuations
b. beta is the largest single factor explaining these fluctuations
c. standard deviation of returns is the largest single factor explaining these
Chapter Eleven 135
Common Stocks: Analysis and Strategy
, fluctuations
d. financial risk is the largest single factor explaining these fluctuations
Ans: a
Difficulty: Moderate
Ref: The Impact of the Overall Market on Stocks
5. The required rate of return for a common stock is defined as the:
a. expected return given an assumed set of probabilities and expected cash flows on
the stock.
b. maximum expected return based on estimates of expected cashflows from the
stock.
c. minimum expected return necessary to induce an investor to purchase the stock.
expected return after evaluation of the risk on the stock has been taken.
Ans: c
Difficulty: Easy
Ref: The Impact of the Overall Market on Stocks
6. The -------------- provides investors with a method of calculating a required
return for a stock.
a. dividend discount model
b. risk-free rate
c. Fisher model
d. Capital Asset Pricing Model
Ans: d
Difficulty: Moderate
Ref: The Impact of the Overall Market on Stocks
7. A bear market is one characterized by a decline of:
a. 10% or more.
b. 15% or more.
c. 20% or more.
d. 25% or more.
Ans: c
Difficulty: Moderate
Ref: The Impact of the Overall Market on Stocks
8. Individual investors consider the investment decision:
a. based on market and economic conditions as consisting of asset allocation.
b. based on market and economic conditions as consisting of asset allocation and
security selection.
c. based on objectives, constraints, and preferences, as consisting of asset allocation.
Chapter Eleven 136
Common Stocks: Analysis and Strategy
