Finance 320 Quiz 5 Exam
Questions with Correct
Answers
The standard deviation for historical stock returns can be calculated as:
a. The positive square root of the average return.
b. The average difference between the actual return and the average return.
c. The positive square root of the variance.
d. The average return divided by N minus one, where N is the number of returns.
e. The variance squared. - Correct Answers: c. The positive square root of the variance.
Over the past 75 years, which of following investments has provided the largest average return?
a. Small company stocks
b. Common stocks
c. Treasury bills
d. Treasury bonds
e. Corporate bonds - Correct Answers: a. Small company stocks
Which of the following is false regarding risk and return?
a. The risk-free asset earns the lowest rate of return.
b. The reward for bearing risk is known as the standard deviation.
c. Based on historical data, there are rewards for bearing risk.
d. An increase in the systematic risk of an investment will result in an increased risk premium.
e. None of the above - Correct Answers: b. The reward for bearing risk is known as the standard
deviation.
The principle of diversification tells us that:
a. Concentrating an investment in two or three large stocks will eliminate all of your risk.
, b. Spreading an investment across many diverse assets cannot (in an efficient market) eliminate risk.
c. Spreading an investment across many diverse assets will eliminate all of the risk.
d. Spreading an investment across many diverse assets will eliminate some of the risk.
e. None of the above. - Correct Answers: d. Spreading an investment across many diverse assets will
eliminate some of the risk.
The slope of an asset's security market line is the __________.
a. market risk premium
b. portfolio weight
c. beta coefficient
d. risk-free interest rate - Correct Answers: a. market risk premium
Which of the following would be considered an example of systematic risk?
a. Intel reports record sales.
b. Quarterly profit for GM equals expectations.
c. Lower quarterly sales for IBM than expected.
d. Greater new jobless claims than expected.
e. None of the above - Correct Answers: d. Greater new jobless claims than expected
Regarding diversification, _____________________________.
a. most of the benefits are realized with about 20 to 30 stocks
b. it is the process of increasing the riskiness associated with individual assets by spreading an
investment across numerous assets
c. the portfolio returns are reduced, and the standard deviation of that portfolio remains unchanged
d. there is no limit to the amount of risk that can be eliminated through this process
e. None of the above - Correct Answers: a. most of the benefits are realized with about 20 to 30 stocks
Suppose that the Federal Reserve takes actions that cause the risk-free rate to fall. All else the same, we
would expect a firm's cost of equity to .
a. increase if we are using the SML
Questions with Correct
Answers
The standard deviation for historical stock returns can be calculated as:
a. The positive square root of the average return.
b. The average difference between the actual return and the average return.
c. The positive square root of the variance.
d. The average return divided by N minus one, where N is the number of returns.
e. The variance squared. - Correct Answers: c. The positive square root of the variance.
Over the past 75 years, which of following investments has provided the largest average return?
a. Small company stocks
b. Common stocks
c. Treasury bills
d. Treasury bonds
e. Corporate bonds - Correct Answers: a. Small company stocks
Which of the following is false regarding risk and return?
a. The risk-free asset earns the lowest rate of return.
b. The reward for bearing risk is known as the standard deviation.
c. Based on historical data, there are rewards for bearing risk.
d. An increase in the systematic risk of an investment will result in an increased risk premium.
e. None of the above - Correct Answers: b. The reward for bearing risk is known as the standard
deviation.
The principle of diversification tells us that:
a. Concentrating an investment in two or three large stocks will eliminate all of your risk.
, b. Spreading an investment across many diverse assets cannot (in an efficient market) eliminate risk.
c. Spreading an investment across many diverse assets will eliminate all of the risk.
d. Spreading an investment across many diverse assets will eliminate some of the risk.
e. None of the above. - Correct Answers: d. Spreading an investment across many diverse assets will
eliminate some of the risk.
The slope of an asset's security market line is the __________.
a. market risk premium
b. portfolio weight
c. beta coefficient
d. risk-free interest rate - Correct Answers: a. market risk premium
Which of the following would be considered an example of systematic risk?
a. Intel reports record sales.
b. Quarterly profit for GM equals expectations.
c. Lower quarterly sales for IBM than expected.
d. Greater new jobless claims than expected.
e. None of the above - Correct Answers: d. Greater new jobless claims than expected
Regarding diversification, _____________________________.
a. most of the benefits are realized with about 20 to 30 stocks
b. it is the process of increasing the riskiness associated with individual assets by spreading an
investment across numerous assets
c. the portfolio returns are reduced, and the standard deviation of that portfolio remains unchanged
d. there is no limit to the amount of risk that can be eliminated through this process
e. None of the above - Correct Answers: a. most of the benefits are realized with about 20 to 30 stocks
Suppose that the Federal Reserve takes actions that cause the risk-free rate to fall. All else the same, we
would expect a firm's cost of equity to .
a. increase if we are using the SML
