Investments Final Practice Exam UPDATED
ACTUAL QUESTIONS AND CORRECT
ANSWERS
A stock has an expected return of 10.0 percent, a beta of 1.30, and the return on the market is
9.50 percent. What must the risk-free rate be? - Correct answers✔✔0.0783
Which of the following is the best example of a risk associated with stock ownership? - Correct
answers✔✔One of the firm's patent applications was unexpectedly rejected
Which one of the following is a trader whose trades are not based on meaningful financial
analysis or information? - Correct answers✔✔Noise Trader
Which one of the following is the type of risk that only affects either a single firm or just a small
number of firms? - Correct answers✔✔Unsystematic
You find the monthly standard deviation of a stock is 3.1 percent. What is the annual standard
deviation of a stock? - Correct answers✔✔10.74%
If the future return on a security is known with absolute certainty, then the risk premium on that
security should be equal to: - Correct answers✔✔Zero
Which of the following measures are dependent upon the accuracy of a security's beta?
I. Sharpe Ratio
II. Treynor Ratio
III. Jensen's Ratio - Correct answers✔✔II and III only
, You are given the following information concerning three portfolios, the market portfolio, and
the risk-free asset:
Portfolio Rp Simgap Betap
X 12.50% 34.00% 1.50
Y 11.50% 29.00% 1.20
Z 7.10% 19.00% 0.80
Market 10.50% 24.00% 1.00
Risk-free 6.20% 0 0
Assume that the tracking error of Portfolio X is 10.50 percent. What is the information ratio for
Portfolio X? - Correct answers✔✔-0.0143
Which one of the following concerns a money manager's control over investment risks,
particularly potential short-run losses? - Correct answers✔✔Investment risk management
Which one of the following is the set of portfolios that provides the maximum return for a given
standard deviation? - Correct answers✔✔Markowitz efficient frontier
A portfolio that belongs to the Markowitz efficient set of portfolios will have which one of the
following characteristics? Assume the portfolios are compromised of five individual securities. -
Correct answers✔✔The lowest risk for any given rate of return
Which one of the following measures systematic risk? - Correct answers✔✔Beta
Prospect Theory is based on the concept that investors are: - Correct answers✔✔Risk-taking
regarding losses
ACTUAL QUESTIONS AND CORRECT
ANSWERS
A stock has an expected return of 10.0 percent, a beta of 1.30, and the return on the market is
9.50 percent. What must the risk-free rate be? - Correct answers✔✔0.0783
Which of the following is the best example of a risk associated with stock ownership? - Correct
answers✔✔One of the firm's patent applications was unexpectedly rejected
Which one of the following is a trader whose trades are not based on meaningful financial
analysis or information? - Correct answers✔✔Noise Trader
Which one of the following is the type of risk that only affects either a single firm or just a small
number of firms? - Correct answers✔✔Unsystematic
You find the monthly standard deviation of a stock is 3.1 percent. What is the annual standard
deviation of a stock? - Correct answers✔✔10.74%
If the future return on a security is known with absolute certainty, then the risk premium on that
security should be equal to: - Correct answers✔✔Zero
Which of the following measures are dependent upon the accuracy of a security's beta?
I. Sharpe Ratio
II. Treynor Ratio
III. Jensen's Ratio - Correct answers✔✔II and III only
, You are given the following information concerning three portfolios, the market portfolio, and
the risk-free asset:
Portfolio Rp Simgap Betap
X 12.50% 34.00% 1.50
Y 11.50% 29.00% 1.20
Z 7.10% 19.00% 0.80
Market 10.50% 24.00% 1.00
Risk-free 6.20% 0 0
Assume that the tracking error of Portfolio X is 10.50 percent. What is the information ratio for
Portfolio X? - Correct answers✔✔-0.0143
Which one of the following concerns a money manager's control over investment risks,
particularly potential short-run losses? - Correct answers✔✔Investment risk management
Which one of the following is the set of portfolios that provides the maximum return for a given
standard deviation? - Correct answers✔✔Markowitz efficient frontier
A portfolio that belongs to the Markowitz efficient set of portfolios will have which one of the
following characteristics? Assume the portfolios are compromised of five individual securities. -
Correct answers✔✔The lowest risk for any given rate of return
Which one of the following measures systematic risk? - Correct answers✔✔Beta
Prospect Theory is based on the concept that investors are: - Correct answers✔✔Risk-taking
regarding losses
