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1. The slope of the security market line, which is the difference
between the expected return on a market portfolio and the
risk-free rate, is called the
A. market risk premium.
B. portfolio variance.
C. arithmetic average return.
D. cost of capital.
2. A stock with a beta coefficient (β) of 2.0 has
A. one-tenth of the risk of an average asset.
B. the same systemic risk as an average asset.
C. one-half the systemic risk of an average asset.
D. twice as much systemic risk as an average asset.
3. In a market, when all information of every kind is reflected
in stock prices, the market is said to be
A. weak form efficient.
B. geometrically efficient.
C. strong form efficient.
D. average return efficient.
4. Suppose that you purchased 200 shares of a stock at $46 per share (ignore all
commissions). Assume the stock paid a dividend of $1.20 per share for the year.
The stock price rose to $52.78 per share, and was then sold at that price. What
was the total amount of dividends received?
A. $120 C. $9,200
B. $240 D. $1,356
5. The term diversifiable risk is synonymous with which of the following?
A. Risk premium C. Systematic risk
B. Unsystematic risk D. Total risk
6. The average compound return earned per year over a multiyear period is called the
A. arithmetic average return.C. geometric average return.
B. normal distribution.D. standard deviation.
7. Which of the following is the formula used to describe the components of a risk premium?
A. risk premium = expected return + projected return
B. total returns = expected return + unexpected return
C. unexpected returns = systematic portion + unsystematic portion
D. risk premium = expected return – risk-free rate
8. Suppose that you purchased 300 shares of a stock at $35 per share (ignore all
commissions). Assume the stock paid a dividend of $1.45 per share for the year.
The stock price rose to $42.50 per share, and was then sold at that price. What
was the total dollar return?
A. $12,750 C. $2,250
B. $2,685 D. $435
9. The concept that asserts that well-organized capital markets, such as the NYSE,
are efficient is called the
A. geometric average return.C. efficient markets hypothesis.
B. normal distribution.D. standard deviation.
10. The percentage of a portfolio’s total value placed in a particular investment is called the
A. portfolio weight.C. portfolio variance.
B. beta coefficient.D. systematic risk.
11. The positively sloped straight line that shows the relationship between expected return
and the beta coefficient is called the
A. frequency distribution.C. geometric average return.
B. bell curve.D. security market line.
12. Assume you purchased 150 shares of a stock at $18 per share (ignore all commissions).
The stock paid a dividend of $0.75 per share for the year. What is the total cost of
the stock?
A. $112.50 C. $1,800
B. $2,812.50 D. $2,700
13. A high degree of uncertainty about the future for a firm is likely to lead to
A. greater variability in the firm’s stock price.
B. lower variability in the firm’s stock price.
C. a lower variance and standard deviation.
D. less volatile returns on the stock.
14. The equation of the security market line that shows the relationship between expected
return and beta is called the
A. security market beta line.
B. unsystematic risk equation.
C. principle of diversification.
D. capital asset pricing model (CAPM).
15. The minimum required return on a new investment is called the
A. average return.C. beta coefficient.
B. cost of capital. D. risk premium.
16. The return earned in an average year over a multiyear period is called the
A. normal distribution.C. arithmetic average return.
B. geometric average return.D. standard deviation.
17. Which of the following is the formula used to calculate the total return on a stock?
A. Total Return = Expected Return + Unexpected Return
B. Total Return = Unexpected Return + Stock Price
C. Total Return = Stock Price _ Number of Shares
D. Total Return = Dividend _ Number of Shares
18. The concept of spreading an investment across a number of assets to eliminate some
(but not all) of the risk is called the
A. systematic component of return.C. principle of diversification.
B. portfolio variance.D. beta coefficient.
19. Suppose that you purchased 100 shares of a stock at $28 per share (ignore all
commissions). Assume that the stock paid a dividend of $1.40 per share for the
year. The stock price rose to $34.65 per share, and was then sold at that price.
What was the total amount of the capital gain (or loss)?
A. $2,800 C. $140
B. $665 D. $3,465
20. When you move from a risk-free investment to a risky investment, the excess return
required on the risky investment is called a
A. risk premium.C. frequency distribution.
B. portfolio weight.D. portfolio variance