Académique Documents
Professionnel Documents
Culture Documents
26. If interest rates rose, you would expect ------------ to also rise.
a. business risk.
b. financial risk.
c. liquidity risk.
d. inflation risk.
10. The major difference between the correlation coefficient and the
covariance is that:
a. the correlation coefficient can be positive, negative or zero while the
covariance is always positive.
b. the correlation coefficient measures relationship between securities and
the covariance measures relationships between a security and the market.
c. the correlation coefficient is a relative measure showing association between
security returns and the covariance is an absolute measure showing association
between security returns.
d. the correlation coefficient is a geometric measure and the covariance is a
statistical measure.
12. Portfolios having the smallest portfolio risk at some level of expected
return or having the highest expected return at some level of risk are
called:
a. risk-free portfolios.
b. high-return portfolios.
c. dominated portfolios.
d. efficient portfolios.
13. Under Markowitz analysis, the only variable that can be manipulated are
the:
a. expected returns
b. portfolio weights
c. standard deviations
d. correlation coefficients
14. Which of the following statements regarding portfolio risk and number of
stocks is generally true?
a. Adding more stocks increases risk.
b. Adding more stocks decreases risk but does not eliminate it.
c. Adding more stocks has no effect on risk.
d. Adding more stocks increases only systematic risk.
16. When returns are perfectly positively correlated, the risk of the portfolio
is:
a. zero.
b. the weighted average of the individual securities risk.
c. equal to the correlation coefficient between the securities.
d. infinite.
10. Portfolios lying on the upper right portion of the efficient frontier are
likely to be chosen by
a. aggressive investors.
b. conservative investors.
c. risk-averse investors.
d. defensive investors.
17. Choose the portfolio from the following set that is NOT on the efficient
frontier.
a. A: expected return of 10 percent ; standard deviation of 8 percent.
b. B: expected return of 18 percent; standard deviation of 13 percent
c. C: expected return of 38 percent; standard deviation of 38 percent.
d. D: expected return of 15 percent; standard deviation of 14 percent.
23. Based on recent research, approximately _______ securities are needed to
ensure adequate diversification.
a. 8
b. 30
c. 70
d. 100
9. Which of the following statements about the difference between the SML
and the CML is TRUE? The
a. intercept of the CML is the origin while the intercept of the SML is RF.
b. CML consists of efficient portfolios, while the SML is concerned with all
portfolios or securities.
c. CML could be downward sloping while that is impossible for the SML.
d. CML and the SML are essentially the same except in terms of the
securities represented.
27. If a certain stock has a beta greater than 1.0, it means that
a. the stock's return is more volatile than that of the market portfolio.
b. an investor can eliminate the risk by combining it with another stock that
has a negative beta.
c. an investor will earn a higher return on his stock than that on the market
portfolio.
d. the stock is less risky than the market portfolio.
13. In an efficient market, prices of securities reflect their economic value.
(T, moderate, p. 12)
12. The return on a zero-coupon bond is derived from the difference between
the price paid and par value.
(T, difficult, p. 30)
13. The deeper the discount on a zero-coupon bond, the lower the effective
return.
(F, moderate, p. 30)
14. If a bond has a coupon greater than the current market yield, it is selling at
a premium.
(T, difficult, p. 30)
16. More callable bonds would likely be called in if interest rates rose.
(F, moderate, p. 31)
20. Bond ratings are primarily used to assess interest rate risk.
(F, moderate, p. 35)
4. It would be expected that most security prices would fall if interest rates
rose.
(T, moderate, p. 143)
1. What are two other names for systematic risk? For unsystematic risk?
Answer: Systematic risk is also called market risk and nondiversifiable risk.
Unsystematic is also called specific risk and diversifiable risk.