# Analysis Of Risk And Return This question bank verified by Studydeets
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Question 1
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Multiple Choice

## The ____ is a statistical measure of the mean or average value of the possible outcomes.

probability distribution

standard deviation

expected value

coefficient of variation

Question 2
Free
Multiple Choice

## The ____ the standard deviation, the ____ the investment.

smaller, larger the expected return on

larger, riskier

smaller, riskier

larger, smaller the expected return on

Question 3
Free
Multiple Choice

## The ____ is an absolute measure of risk, and the ____ is a relative measure of risk.

systematic risk, unsystematic risk

standard deviation, coefficient of variation

correlation, covariance

security market line, characteristic line

Question 4
Free
Multiple Choice

## When comparing two equal-sized investments, the ____ is an appropriate measure of total risk.

standard deviation

coefficient of variation

correlation

covariance

Question 5
Free
Multiple Choice

## The slope of the characteristic line for a specific security is an estimate of ____ for that security.

beta

systematic risk

total risk

both beta and systematic risk

Question 6
Multiple Choice

## The ____ is the ratio of ____ to the ____ .

standard deviation, covariance, expected value
covariance, expected value, standard deviation
coefficient of variation, standard deviation, expected value
coefficient of variation, systematic risk, expected value
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Question 7
Multiple Choice

## The coefficient of variation is a(n) ____ measure of risk.

relative
absolute
systematic
unsystematic
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Question 8
Multiple Choice

## Values of the ____ can range from +1.0 to -1.0.

coefficient of variation
correlation coefficient
standard deviation
covariance
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Question 9
Multiple Choice

## The ____ of a portfolio of two or more securities is equal to the weighted average of the ____ of each of the individual securities in the portfolio.

standard deviation, standard deviation
risk, risk
expected return, expected return
standard deviation, risk
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Question 10
Multiple Choice

## The primary difference between the standard deviation and the coefficient of variation as measures of risk is:

the coefficient of variation is easier to compute.
the standard deviation is a measure of relative risk whereas the coefficient of variation is a measure of absolute risk.
the coefficient of variation is a measure of relative risk whereas the standard deviation is a measure of absolute risk.
the standard deviation is rarely used in practice whereas the coefficient of variation is widely used.
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Question 11
Multiple Choice

## Security A's expected return is 10 percent while the expected return of B is 14 percent. The standard deviation of A's returns is 5 percent, and it is 9 percent for B. An investor plans to invest equal amounts in A and B. Which of the following statements is true about this portfolio consisting of stock A and stock B.

The risk of the portfolio is equal to 7 percent.
The lower the correlation of returns between the two stocks, the higher the portfolio's risk.
The risk of the portfolio is primarily dependent on the utility function of the investor.
The higher the correlation of returns between the two stocks, the higher the portfolio's risk.
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Question 12
Multiple Choice

## Which of the following is not an example of a source of systematic risk?

interest rate changes
foreign competition with an industry's products
changes in the overall economic outlook
changes in the inflation rate
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Question 13
Multiple Choice

## The security market line

is defined as the slope of a line relating an individual security's return to the returns of other securities in that firm's primary industry.
provides a picture of the risk-return tradeoff required by diversified investors considering various risky assets.
has as its slope the beta of the security
is determined by the prevailing level of risk-free interest rates minus a risk premium
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Question 14
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## All other things being equal, what is the major impact that an increase in the expected inflation rate would be expected to have on the security market line?

reduce its slope
shift it down and to the right
shift it up and to the left
reduce required returns for investors in any individual asset
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Question 15
Multiple Choice

## Beta is defined as:

a measure of volatility of a security's returns relative to the returns of a broad-based market portfolio of securities.
the ratio of the variance of market returns to the covariance of returns on a security with the market
the inverse of the slope of the security regression line
all of the above
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Question 16
Multiple Choice

## A beta value of 0.5 for a security indicates

the security has average systematic risk
the security has above-average systematic risk
the security has no unsystematic risk
the security has below-average systematic risk
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Question 17
Multiple Choice

## The security market line can be thought of as expressing relationships between required rates of return and

the time value of money
beta
total risk
portfolio diversification
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Question 18
Multiple Choice

## Users of the CAPM should be aware of some of the problems in its practical application. These problems include which of the following?

estimating expected future market returns
determining the most appropriate measure of the risk- free rate
determining an asset's future beta
all of the above are problems in application of the CAPM
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Question 19
Multiple Choice

## Recalling the meaning and calculation of beta, a security that is completely uncorrelated (r?,m = 0) with the market portfolio would have a beta of

-1
0
+1
-100
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Question 20
Multiple Choice