Analysis Of Risk And Return

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Question 1
Free
Multiple Choice

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

Choose correct answer/s
A

probability distribution

B

standard deviation

C

expected value

D

coefficient of variation

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Question 2
Free
Multiple Choice

The ____ the standard deviation, the ____ the investment.

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A

smaller, larger the expected return on

B

larger, riskier

C

smaller, riskier

D

larger, smaller the expected return on

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Question 3
Free
Multiple Choice

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

Choose correct answer/s
A

systematic risk, unsystematic risk

B

standard deviation, coefficient of variation

C

correlation, covariance

D

security market line, characteristic line

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Question 4
Free
Multiple Choice

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

Choose correct answer/s
A

standard deviation

B

coefficient of variation

C

correlation

D

covariance

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Question 5
Free
Multiple Choice

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

Choose correct answer/s
A

beta

B

systematic risk

C

total risk

D

both beta and systematic risk

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Question 6
Multiple Choice

The ____ is the ratio of ____ to the ____ .

Choose correct answer/s
A
standard deviation, covariance, expected value
B
covariance, expected value, standard deviation
C
coefficient of variation, standard deviation, expected value
D
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.

Choose correct answer/s
A
relative
B
absolute
C
systematic
D
unsystematic
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Question 8
Multiple Choice

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

Choose correct answer/s
A
coefficient of variation
B
correlation coefficient
C
standard deviation
D
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.

Choose correct answer/s
A
standard deviation, standard deviation
B
risk, risk
C
expected return, expected return
D
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:

Choose correct answer/s
A
the coefficient of variation is easier to compute.
B
the standard deviation is a measure of relative risk whereas the coefficient of variation is a measure of absolute risk.
C
the coefficient of variation is a measure of relative risk whereas the standard deviation is a measure of absolute risk.
D
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.

Choose correct answer/s
A
The risk of the portfolio is equal to 7 percent.
B
The lower the correlation of returns between the two stocks, the higher the portfolio's risk.
C
The risk of the portfolio is primarily dependent on the utility function of the investor.
D
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?

Choose correct answer/s
A
interest rate changes
B
foreign competition with an industry's products
C
changes in the overall economic outlook
D
changes in the inflation rate
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Question 13
Multiple Choice

The security market line

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A
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.
B
provides a picture of the risk-return tradeoff required by diversified investors considering various risky assets.
C
has as its slope the beta of the security
D
is determined by the prevailing level of risk-free interest rates minus a risk premium
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Question 14
Multiple Choice

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?

Choose correct answer/s
A
reduce its slope
B
shift it down and to the right
C
shift it up and to the left
D
reduce required returns for investors in any individual asset
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Question 15
Multiple Choice

Beta is defined as:

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

A beta value of 0.5 for a security indicates

Choose correct answer/s
A
the security has average systematic risk
B
the security has above-average systematic risk
C
the security has no unsystematic risk
D
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

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A
the time value of money
B
beta
C
total risk
D
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?

Choose correct answer/s
A
estimating expected future market returns
B
determining the most appropriate measure of the risk- free rate
C
determining an asset's future beta
D
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

Choose correct answer/s
A
-1
B
0
C
+1
D
-100
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Question 20
Multiple Choice

All of the following are primary sources of systematic risk except

Choose correct answer/s
A
changes in the amount of foreign competition facing an industry
B
changes in investor expectations about the economy
C
interest rate changes
D
changes in purchasing power
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