Chapterh13h-hReturn,hRisk,handhthehSecurityhMarkethLine
Chapter 13 h
Return, Risk, and the Security Market Line
h h h h h h
hh
MultiplehChoicehQuestions
h
1.hYouhownhahstockhthathyouhthinkhwillhproducehahreturnhofh11hpercenthinhahgoodheconomyhandh3h
percenthinhahpoorheconomy.hGivenhthehprobabilitieshofheachhstatehofhtheheconomyhoccurring,hyouh
anticipatehthathyourhstockhwillhearnh6.5hpercenthnexthyear.hWhichhonehofhthehfollowinghtermshapp
lieshtohthish6.5hpercent?h
A.harithmetichreturn
B.hhistoricalhreturn
C.hexpectedhreturn
D.hgeometrichreturn
E.hrequiredhreturn
h
2.hSuziehownshfivehdifferenthbondshvaluedhath$36,000handhtwelvehdifferenthstockshvaluedhath$82,
500htotal.hWhichhonehofhthehfollowinghtermshmosthapplieshtohSuzie'shinvestments?h
A.hindex
B.hportfolio
C.hcollection
D.hgrouping
E.hrisk-free
h
3.hStevehhashinvestedhinhtwelvehdifferenthstockshthathhavehahcombinedhvaluehtodayhofh$121,300.h
FifteenhpercenthofhthathtotalhishinvestedhinhWisehManhFoods.hTheh15hpercenthishahmeasurehofhwhic
hhonehofhthehfollowing?h
A.hportfoliohreturn
B.hportfoliohweight
C.hdegreehofhrisk
D.hprice-earningshratio
E.hindexhvalue
h
13-1
,Chapterh13h-hReturn,hRisk,handhthehSecurityhMarkethLine
4.hWhichhonehofhthehfollowinghishahriskhthathapplieshtohmosthsecurities?h
A.hunsystematic
B.hdiversifiable
C.hsystematic
D.hasset-specific
E.htotal
h
5.hAhnewshflashhjusthappearedhthathcausedhabouthahdozenhstockshtohsuddenlyhdrophinhvaluehbyhabo
uth20hpercent.hWhathtypehofhriskhdoeshthishnewshflashhrepresent?h
A.hportfolio
B.hnondiversifiable
C.hmarket
D.hunsystematic
E.htotal
h
6.hThehprinciplehofhdiversificationhtellshushthat:h
A.hconcentratinghanhinvestmenthinhtwohorhthreehlargehstockshwillheliminatehallhofhthehunsystemati
chrisk.
B.hconcentratinghanhinvestmenthinhthreehcompanieshallhwithinhthehsamehindustryhwillhgreatlyhred
ucehthehsystematichrisk.
C.hspreadinghanhinvestmenthacrosshfivehdiversehcompanieshwillhnothlowerhthehtotalhrisk.
D.hspreadinghanhinvestmenthacrosshmanyhdiversehassetshwillheliminatehallhofhthehsystematichrisk.
E.hspreadinghanhinvestmenthacrosshmanyhdiversehassetshwillheliminatehsomehofhthehtotalhrisk.
h
7.hTheh_____htellshushthaththehexpectedhreturnhonhahriskyhassethdependshonlyhonhthathasset'shnondi
versifiablehrisk.h
A.hefficienthmarketshhypothesis
B.hsystematichriskhprinciple
C.hopenhmarketshtheorem
D.hlawhofhonehprice
E.hprinciplehofhdiversification
h
13-2
,Chapterh13h-hReturn,hRisk,handhthehSecurityhMarkethLine
8.hWhichhonehofhthehfollowinghmeasureshthehamounthofhsystematichriskhpresenthinhahparticularhris
kyhassethrelativehtohthehsystematichriskhpresenthinhanhaveragehriskyhasset?h
A.hbeta
B.hreward-to-riskhratio
C.hriskhratio
D.hstandardhdeviation
E.hprice-earningshratio
h
9.hWhichhonehofhthehfollowinghishahpositivelyhslopedhlinearhfunctionhthathishcreatedhwhenhexpecte
dhreturnsharehgraphedhagainsthsecurityhbetas?h
A.hreward-to-riskhmatrix
B.hportfoliohweighthgraph
C.hnormalhdistribution
D.hsecurityhmarkethline
E.hmarkethrealhreturns
h
10.hWhichhonehofhthehfollowinghishrepresentedhbyhthehslopehofhthehsecurityhmarkethline?h
A.hreward-to-riskhratio
B.hmarkethstandardhdeviation
C.hbetahcoefficient
D.hrisk-freehinteresthrate
E.hmarkethriskhpremium
h
11.hWhichhonehofhthehfollowinghishthehformulahthathexplainshthehrelationshiphbetweenhthehexpect
edhreturnhonhahsecurityhandhthehlevelhofhthathsecurity'shsystematichrisk?h
A.hcapitalhassethpricinghmodel
B.htimehvaluehofhmoneyhequation
C.hunsystematichriskhequation
D.hmarkethperformancehequation
E.hexpectedhriskhformula
h
13-3
, Chapterh13h-hReturn,hRisk,handhthehSecurityhMarkethLine
12.hTreynorhIndustrieshishinvestinghinhahnewhproject.hThehminimumhratehofhreturnhthehfirmhrequir
eshonhthishprojecthishreferredhtohashthe:h
A.haverageharithmetichreturn.
B.hexpectedhreturn.
C.hmarkethratehofhreturn.
D.hinternalhratehofhreturn.
E.hcosthofhcapital.
h
13.hThehexpectedhreturnhonhahstockhgivenhvarioushstateshofhtheheconomyhishequalhtohthe:h
A.hhighesthexpectedhreturnhgivenhanyheconomichstate.
B.harithmetichaveragehofhthehreturnshforheachheconomichstate.
C.hsummationhofhthehindividualhexpectedhrateshofhreturn.
D.hweightedhaveragehofhthehreturnshforheachheconomichstate.
E.hreturnhforhtheheconomichstatehwithhthehhighesthprobabilityhofhoccurrence.
h
14.hThehexpectedhreturnhonhahstockhcomputedhusingheconomichprobabilitieshis:h
A.hguaranteedhtohequalhthehactualhaveragehreturnhonhthehstockhforhthehnexthfivehyears.
B.hguaranteedhtohbehthehminimalhratehofhreturnhonhthehstockhoverhthehnexthtwohyears.
C.hguaranteedhtohequalhthehactualhreturnhforhthehimmediatehtwelvehmonthhperiod.
D.hahmathematicalhexpectationhbasedhonhahweightedhaveragehandhnothanhactualhanticipatedhoutco
me.
E.hthehactualhreturnhyouhshouldhanticipatehashlonghashtheheconomichforecasthremainshconstant.
h
15.hThehexpectedhriskhpremiumhonhahstockhishequalhtohthehexpectedhreturnhonhthehstockhminushthe
:h
A.hexpectedhmarkethratehofhreturn.
B.hrisk-freehrate.
C.hinflationhrate.
D.hstandardhdeviation.
E.hvariance.
h
13-4
Chapter 13 h
Return, Risk, and the Security Market Line
h h h h h h
hh
MultiplehChoicehQuestions
h
1.hYouhownhahstockhthathyouhthinkhwillhproducehahreturnhofh11hpercenthinhahgoodheconomyhandh3h
percenthinhahpoorheconomy.hGivenhthehprobabilitieshofheachhstatehofhtheheconomyhoccurring,hyouh
anticipatehthathyourhstockhwillhearnh6.5hpercenthnexthyear.hWhichhonehofhthehfollowinghtermshapp
lieshtohthish6.5hpercent?h
A.harithmetichreturn
B.hhistoricalhreturn
C.hexpectedhreturn
D.hgeometrichreturn
E.hrequiredhreturn
h
2.hSuziehownshfivehdifferenthbondshvaluedhath$36,000handhtwelvehdifferenthstockshvaluedhath$82,
500htotal.hWhichhonehofhthehfollowinghtermshmosthapplieshtohSuzie'shinvestments?h
A.hindex
B.hportfolio
C.hcollection
D.hgrouping
E.hrisk-free
h
3.hStevehhashinvestedhinhtwelvehdifferenthstockshthathhavehahcombinedhvaluehtodayhofh$121,300.h
FifteenhpercenthofhthathtotalhishinvestedhinhWisehManhFoods.hTheh15hpercenthishahmeasurehofhwhic
hhonehofhthehfollowing?h
A.hportfoliohreturn
B.hportfoliohweight
C.hdegreehofhrisk
D.hprice-earningshratio
E.hindexhvalue
h
13-1
,Chapterh13h-hReturn,hRisk,handhthehSecurityhMarkethLine
4.hWhichhonehofhthehfollowinghishahriskhthathapplieshtohmosthsecurities?h
A.hunsystematic
B.hdiversifiable
C.hsystematic
D.hasset-specific
E.htotal
h
5.hAhnewshflashhjusthappearedhthathcausedhabouthahdozenhstockshtohsuddenlyhdrophinhvaluehbyhabo
uth20hpercent.hWhathtypehofhriskhdoeshthishnewshflashhrepresent?h
A.hportfolio
B.hnondiversifiable
C.hmarket
D.hunsystematic
E.htotal
h
6.hThehprinciplehofhdiversificationhtellshushthat:h
A.hconcentratinghanhinvestmenthinhtwohorhthreehlargehstockshwillheliminatehallhofhthehunsystemati
chrisk.
B.hconcentratinghanhinvestmenthinhthreehcompanieshallhwithinhthehsamehindustryhwillhgreatlyhred
ucehthehsystematichrisk.
C.hspreadinghanhinvestmenthacrosshfivehdiversehcompanieshwillhnothlowerhthehtotalhrisk.
D.hspreadinghanhinvestmenthacrosshmanyhdiversehassetshwillheliminatehallhofhthehsystematichrisk.
E.hspreadinghanhinvestmenthacrosshmanyhdiversehassetshwillheliminatehsomehofhthehtotalhrisk.
h
7.hTheh_____htellshushthaththehexpectedhreturnhonhahriskyhassethdependshonlyhonhthathasset'shnondi
versifiablehrisk.h
A.hefficienthmarketshhypothesis
B.hsystematichriskhprinciple
C.hopenhmarketshtheorem
D.hlawhofhonehprice
E.hprinciplehofhdiversification
h
13-2
,Chapterh13h-hReturn,hRisk,handhthehSecurityhMarkethLine
8.hWhichhonehofhthehfollowinghmeasureshthehamounthofhsystematichriskhpresenthinhahparticularhris
kyhassethrelativehtohthehsystematichriskhpresenthinhanhaveragehriskyhasset?h
A.hbeta
B.hreward-to-riskhratio
C.hriskhratio
D.hstandardhdeviation
E.hprice-earningshratio
h
9.hWhichhonehofhthehfollowinghishahpositivelyhslopedhlinearhfunctionhthathishcreatedhwhenhexpecte
dhreturnsharehgraphedhagainsthsecurityhbetas?h
A.hreward-to-riskhmatrix
B.hportfoliohweighthgraph
C.hnormalhdistribution
D.hsecurityhmarkethline
E.hmarkethrealhreturns
h
10.hWhichhonehofhthehfollowinghishrepresentedhbyhthehslopehofhthehsecurityhmarkethline?h
A.hreward-to-riskhratio
B.hmarkethstandardhdeviation
C.hbetahcoefficient
D.hrisk-freehinteresthrate
E.hmarkethriskhpremium
h
11.hWhichhonehofhthehfollowinghishthehformulahthathexplainshthehrelationshiphbetweenhthehexpect
edhreturnhonhahsecurityhandhthehlevelhofhthathsecurity'shsystematichrisk?h
A.hcapitalhassethpricinghmodel
B.htimehvaluehofhmoneyhequation
C.hunsystematichriskhequation
D.hmarkethperformancehequation
E.hexpectedhriskhformula
h
13-3
, Chapterh13h-hReturn,hRisk,handhthehSecurityhMarkethLine
12.hTreynorhIndustrieshishinvestinghinhahnewhproject.hThehminimumhratehofhreturnhthehfirmhrequir
eshonhthishprojecthishreferredhtohashthe:h
A.haverageharithmetichreturn.
B.hexpectedhreturn.
C.hmarkethratehofhreturn.
D.hinternalhratehofhreturn.
E.hcosthofhcapital.
h
13.hThehexpectedhreturnhonhahstockhgivenhvarioushstateshofhtheheconomyhishequalhtohthe:h
A.hhighesthexpectedhreturnhgivenhanyheconomichstate.
B.harithmetichaveragehofhthehreturnshforheachheconomichstate.
C.hsummationhofhthehindividualhexpectedhrateshofhreturn.
D.hweightedhaveragehofhthehreturnshforheachheconomichstate.
E.hreturnhforhtheheconomichstatehwithhthehhighesthprobabilityhofhoccurrence.
h
14.hThehexpectedhreturnhonhahstockhcomputedhusingheconomichprobabilitieshis:h
A.hguaranteedhtohequalhthehactualhaveragehreturnhonhthehstockhforhthehnexthfivehyears.
B.hguaranteedhtohbehthehminimalhratehofhreturnhonhthehstockhoverhthehnexthtwohyears.
C.hguaranteedhtohequalhthehactualhreturnhforhthehimmediatehtwelvehmonthhperiod.
D.hahmathematicalhexpectationhbasedhonhahweightedhaveragehandhnothanhactualhanticipatedhoutco
me.
E.hthehactualhreturnhyouhshouldhanticipatehashlonghashtheheconomichforecasthremainshconstant.
h
15.hThehexpectedhriskhpremiumhonhahstockhishequalhtohthehexpectedhreturnhonhthehstockhminushthe
:h
A.hexpectedhmarkethratehofhreturn.
B.hrisk-freehrate.
C.hinflationhrate.
D.hstandardhdeviation.
E.hvariance.
h
13-4
