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FINAL

QuestionAnswer
Standard deviation is a measure of which one of the following? volatility
The excess return is computed as the: return on a risky security minus the risk-free rate.
Which one of the following statements is correct? The greater the volatility of returns, the greater the risk premium.
Efficient financial markets fluctuate continuously because: the markets are continually reacting to new information.
Inside information has the least value when financial markets are: strong form efficient.
Yyour neighbor trades stocks based on confidential information he overhears . This information is not available to the general public. brags to you about the profits he earns on these trades. you would tend to argue that the financial markets semistrong
Individuals who continually monitor the financial markets seeking mispriced securities: make the markets increasingly more efficient.
Which one of the following is a risk that applies to most securities? systematic
A news flash just appeared that caused about a dozen stocks to suddenly drop in value by about 20 percent. What type of risk does this news flash represent? unsystematic
The principle of diversification tells us that: spreading an investment across many diverse assets will eliminate some of the total risk.
Which one of the following measures the amount of systematic risk present in a particular risky asset relative to the systematic risk present in an average risky asset? beta
Which one of the following is a positively sloped linear function that is created when expected returns are graphed against security betas? security market line
The expected risk premium on a stock is equal to the expected return on the stock minus the: risk free rate
The expected return on a portfolio considers which of the following factors? I,II,III, and IV
If a stock portfolio is well diversified, then the portfolio variance: may be less than the variance of the least risky stock in the portfolio.
The expected return on a portfolio: I,II, and III
The standard deviation of a portfolio: can be less than the standard deviation of the least risky security in the portfolio.
unsystematic risk: can be effectively eliminated by portfolio diversification.
can be effectively eliminated by portfolio diversification. Eliminating unsystematic risk is the responsibility of the individual investor.
Which of the following statements concerning risk are correct? I & III
Which one of the following indicates a portfolio is being effectively diversified? a decrease in the portfolio standard deviation
Systematic risk is measured by: beta
Total risk is measured by _____ and systematic risk is measured by _____. standard deviation, beta
The intercept point of the security market line is the rate of return which corresponds to: risk free rate
Which one of the following will be constant for all securities if the market is efficient and securities are priced fairly? reward to risk ratio
The reward-to-risk ratio for stock A is less than the reward-to-risk ratio of stock B. Stock A has a beta of 0.82 and stock B has a beta of 1.29. This information implies that: either stock A is overpriced or stock B is underpriced or both.
The market risk premium is computed by: subtracting the risk-free rate of return from the market rate of return.
The excess return earned by an asset that has a beta of 1.34 over that earned by a risk-free asset is referred to as the: risk premium
The capital asset pricing model (CAPM) assumes which of the following? I,III, and IV only
when the stocks are underpriced market timing
a signal to the market that the stocks are underpriced. Then investors will follow the firm to buy back stocks. The outcome that the stock prices will rise. sjgnaling effect
risk is measured by standard deviation
The average of a firm's cost of equity and aftertax cost of debt that is weighted based on the firm's capital structure is called the: weighted average cost of capital
The capital structure weights used in computing the weighted average cost of capital: are based on the market value of the firm's debt and equity securities.
Which one of the following statements is correct for a firm that uses debt in its capital structure? The WACC should decrease as the firm's debt-equity ratio increases.
Created by: rcu10
 

 



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