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The amount of systematic risk present in a particular risky asset relative to that in an average risky asset is called the:


A) market risk premium
B) beta coefficient
C) security's alpha
D) standard deviation
E) asset mean

F) B) and C)
G) A) and B)

Correct Answer

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The beta of a portfolio cannot be less than _____ and no more than _____:


A) 0;1
B) the lowest individual beta in the portfolio;the highest individual beta in the portfolio
C) the lowest individual beta in the portfolio;1
D) 0;the highest individual beta in the portfolio
E) 1;2

F) All of the above
G) C) and E)

Correct Answer

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Stock A comprises 28 per cent of Susan's portfolio.Which one of the following terms applies to the 28 per cent?


A) portfolio standard deviation
B) portfolio expected return
C) portfolio weight
D) portfolio variance
E) portfolio beta

F) C) and E)
G) A) and E)

Correct Answer

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Which one of the following measures the amount of systematic risk present in a particular risky asset relative to that in an average risky asset?


A) variance
B) squared deviation
C) standard deviation
D) mean
E) beta coefficient

F) D) and E)
G) B) and E)

Correct Answer

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Which one of the following best describes a portfolio?


A) investment in a risk-free security
B) security equally as risky as the overall market
C) group of assets held by an investor
D) risky security
E) new issue of stock

F) C) and E)
G) D) and E)

Correct Answer

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Manly Manufacturing Pty Ltd stock has an expected return of 14.47 per cent.The risk-free rate is 3.8 per cent and the market risk premium is 8.6 per cent.What is the stock's beta?


A) 1.21
B) 1.28
C) 1.24
D) 1.32
E) 1.19

F) A) and B)
G) None of the above

Correct Answer

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Suppose an investor created the following portfolio: What is the portfolio beta?


A) 0.71
B) 0.60
C) 0.95
D) 0
E) 1.00

F) A) and E)
G) B) and C)

Correct Answer

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Suppose an investor created the following portfolio: What is the expected return on this portfolio?


A) 9.7%
B) 10%
C) 12.5%
D) 15%
E) 8.5%

F) C) and D)
G) A) and D)

Correct Answer

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A

You own a $46 000 portfolio comprised of four stocks.The values of stocks A,B,and C are $5600,$16 700,and $11 400,respectively.What is the portfolio weight of stock D?


A) 30.33 per cent
B) 32.58 per cent
C) 32.10 per cent
D) 26.74 per cent
E) 28.39 per cent

F) C) and E)
G) A) and C)

Correct Answer

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Which one of the following portfolios will have a beta of zero?


A) a portfolio that is equally as risky as the overall market
B) a portfolio with a zero variance of returns
C) no portfolio can have a beta of zero
D) a portfolio that consists of a single stock
E) a portfolio comprised solely of Australian Government Treasury notes

F) B) and D)
G) All of the above

Correct Answer

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E

Consider the following information on two securities: What is the risk-free rate?


A) 10%
B) 8%
C) 5%
D) 6%
E) 9%

F) A) and E)
G) C) and D)

Correct Answer

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The principle of diversification tells us that:


A) there is no risk in investing in a portfolio of shares
B) spreading your investment across many assets will eliminate some risk
C) all risk can be eliminated
D) unsystematic risk cannot be reduced
E) systematic risk can always be eliminated by diversification

F) A) and C)
G) A) and B)

Correct Answer

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The slope of the security market line is equal to:


A) the return on the market
B) the market risk premium
C) 1 minus the risk-free rate of return
D) the risk-free rate plus the market risk premium
E) the risk-free rate of return,plus beta times the market risk premium

F) A) and E)
G) A) and D)

Correct Answer

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The following table details an analyst's prediction of the probabilities of different states of the market over the next year,along with the forecast returns on security Alpha-a share of a company in a cyclical industry in each different market state. What is the expected return and standard deviation of returns on security Alpha?


A) 8.50% and 9.09%
B) 8.20% and 4.26%
C) 7.80% and 9.09%
D) 8.50% and 0.83%
E) 6.52% and 8.26%

F) A) and D)
G) A) and E)

Correct Answer

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A portfolio weight is defined as the:


A) total current market value of an entire portfolio of diversified holdings
B) total market value of a portfolio divided by the total book value of that portfolio
C) current value of a portfolio minus the value one year ago,divided by the value one year ago
D) total number of shares in a particular asset divided by the total number of shares held in a portfolio
E) percentage of a portfolio's total value that is invested in a particular asset

F) B) and C)
G) A) and B)

Correct Answer

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Which one of the following is the best example of an event related to an expected return?


A) an announcement that a firm will meet its sales projections
B) a GDP growth rate that surpassed predictions
C) a market decline due to increased tensions in the world
D) a news release that a firm is going to be acquired at a premium
E) a sudden increase in the inflation rate

F) A) and B)
G) C) and D)

Correct Answer

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Which one of the following is the best example of unsystematic risk?


A) a decrease in the value of the dollar
B) inflation exceeding market expectations
C) a warehouse fire
D) a decrease in corporate tax rates
E) an increase in consumer spending

F) D) and E)
G) B) and E)

Correct Answer

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Candy and More stock is expected to produce the following returns given the various states of the economy.What is the expected return on this stock?


A) 9.90 per cent
B) 7.89 per cent
C) 9.43 per cent
D) 10.02 per cent
E) 8.56 per cent

F) C) and D)
G) C) and E)

Correct Answer

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A

A stock is expected to return 13 per cent in an economic boom,10 per cent in a normal economy,and 3 per cent in a recessionary economy.Which one of the following will lower the overall expected rate of return on this stock?


A) an increase in the probability of an economic boom
B) an increase in the rate of return for a normal economy
C) an increase in the rate of return in a recessionary economy
D) a decrease in the probability of an economic boom
E) a decrease in the probability of a recession occurring

F) B) and C)
G) C) and D)

Correct Answer

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Which of the following terms can be used to describe unsystematic risk? I.asset-specific risk II.diversifiable risk III.market risk IV.unique risk


A) I and IV only
B) I,II,III and IV
C) II and III only
D) II,III and IV only
E) I,II and IV only

F) B) and D)
G) C) and E)

Correct Answer

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