Introduction To Risk,return,and The Opportunity Cost Of Capital

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Question 1

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A market index is used to measure performance of a broad-based portfolio of stocks.

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Question 2

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Stock market indexes are found in many countries outside the United States.

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Question 3

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Long-term bonds are the only portfolio of securities found to be riskier than common stocks.

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Question 4

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For investment horizons greater than 20 years,long-term bonds traditionally have outperformed common stocks.

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Question 5

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The S&P 500 accounts for most of the total market value of stocks traded in the United States.

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Question 6

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The expected return on an investment includes compensation for both the time value of money and the risks assumed.

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Question 7

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If one portfolio's variance exceeds that of another portfolio,its standard deviation will also be greater than that of the other portfolio.

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Question 8

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The market risk premium is the difference between the return on common stocks and the risk-free interest rate.

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Question 9

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Market risk can be eliminated in a stock portfolio through diversification.

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Question 10

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Macro risks are faced by all common stock investors.

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Question 11

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The risk that remains in a well-diversified stock portfolio is known as specific risk.

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Question 12

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Cyclical stocks tend to perform well when other stocks are performing well also.

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Question 13

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Average returns on high-risk assets are higher than those on low-risk assets.

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Question 14

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The historical record fails to show that investors have received a risk premium for holding risky assets.

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Question 15

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Many investors who bought shares of dot.com stocks in March 2000 saw the value of their investment decline over the next two-and-a-half years.

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Question 16

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Every additional stock added to a portfolio reduces the portfolio's level of risk by an equal amount.

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Question 17

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The expected return on an investment provides compensation to investors both for waiting and for worrying.

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Question 18

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One estimate of the market risk premium is provided by the difference between the average historical return on common stocks and the risk-free interest rate.

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Question 19

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When using historical data to estimate the market risk premium,it is important to focus on recent experience.

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Question 20

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A share of stock currently sells for $60,pays an annual dividend of $4.00,and earned a rate of return of 20% over the past year.What did this stock sell for one year ago?

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$42.00

$46.15

$48.46

$53.33

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