Consider the CAPM. The expected return on the market is 18%. The expected return on a stock with a beta of 1.2 is 20%. What is the risk-free rate?

Consider the CAPM. The expected return on the market is 18%. The expected return on a stock with a beta of 1.2 is 20%. What is the risk-free rate?  A)...

Consider the CAPM. The risk-free rate is 5% and the expected return on the market is 15%. What is the beta on a stock with an expected return of 12%?

Consider the CAPM. The risk-free rate is 5% and the expected return on the market is 15%. What is the beta on a stock with an expected return of 12%?  A)...

The expected return of portfolio is 8.9% and the risk free rate is 3.5%. If the portfolio standard deviation is 12.0%, what is the reward to variability ratio of the portfolio?

The expected return of portfolio is 8.9% and the risk free rate is 3.5%. If the portfolio standard deviation is 12.0%, what is the reward to variability...

What is the standard deviation of a portfolio of two stocks given the following data? Stock A has a standard deviation of 18%. Stock B has a standard deviation of 14%. The portfolio contains 40% of stock A and the correlation coefficient between the two stocks is -.23.

What is the standard deviation of a portfolio of two stocks given the following data? Stock A has a standard deviation of 18%. Stock B has a standard...

Stock A in a two asset portfolio has an expected return of 14%. Stock B in the same portfolio has an expected return of 22%. Which of the following is the likely expected return for a portfolio containing both of these two assets?

Stock A in a two asset portfolio has an expected return of 14%. Stock B in the same portfolio has an expected return of 22%. Which of the following...

Investing in two assets with a correlation coefficient of 1.0 will reduce which kind of risk?

Investing in two assets with a correlation coefficient of 1.0 will reduce which kind of risk?  A) Market risk B) Unique risk C) Unsystematic risk D)...

Which of the following correlations coefficients will produce the least diversification benefit?

Which of the following correlations coefficients will produce the least diversification benefit?  A) -0.6 B) -1.5 C) 0.0 D) 0.8 Answer:...

Decreasing the number of stock in a portfolio from 50 to 10 would likely to _____.

Decreasing the number of stock in a portfolio from 50 to 10 would likely to _____.  A) increase the systematic risk of the portfolio B) increase...

Consistent with capital market theory, systematic risk ____.

Consistent with capital market theory, systematic risk ____.  A) refers to the variability in all risky assets caused by macroeconomic and other...

Used appropriately, diversification can reduce or eliminate __________ risk.

Used appropriately, diversification can reduce or eliminate __________ risk. A) all B) systematic C) unsystematic D) None of the above Answer:...

As additional securities are added to a portfolio, total risk will generally ________ at a _________ rate.

As additional securities are added to a portfolio, total risk will generally ________ at a _________ rate.  A) rise; decreasing B) rise; increasing C)...

An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 20% while the standard deviation on stock B is 15%. The correlation coefficient between the return on A and B is 0%. The expected return on stock A is 20% while on stock B it is 10%. The proportion of the minimum variance portfolio that would be invested in stock B is __________.

An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 20% while the standard deviation...

The standard deviation of return on investment A is .10 while the standard deviation of return on investment B is .04. If the correlation coefficient between the returns on A and B is -.50, the covariance of returns on A and B is __________.

The standard deviation of return on investment A is .10 while the standard deviation of return on investment B is .04. If the correlation coefficient...

A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 5% while stock B has a standard deviation of return of 15%. The correlation coefficient between the returns on A and B is .5. Stock A comprises 40% of the portfolio while stock B comprises 60% of the portfolio. The variance of return on the portfolio is __________.

A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 5% while stock B has a standard deviation of return of...

The standard deviation of return on investment A is .10 while the standard deviation of return on investment B is .05. If the covariance of returns on A and B is .0030, the correlation coefficient between the returns on A and B is __________.

The standard deviation of return on investment A is .10 while the standard deviation of return on investment B is .05. If the covariance of returns...

Firm specific risk is also called __________ and ___________.

Firm specific risk is also called __________ and ___________.  A) systematic risk, diversifiable risk B) systematic risk, non-diversifiable risk C)...

Market risk is also called __________ and __________.

Market risk is also called __________ and __________.  A) systematic risk, diversifiable risk B) systematic risk, nondiversifiable risk C) unique...

The risk that can be diversified away is ___________.

The risk that can be diversified away is ___________.  A) beta B) firm specific risk C) market risk D) systematic risk Answer: ...

Beta is a measure of __________.

Beta is a measure of __________.  A) firm specific risk B) diversifiable risk C) market risk D) unique riskv Answer:...

Asset A has an expected return of 20% and a standard deviation of 25%. The risk free rate is 10%. What is the reward-to-variability ratio?

Asset A has an expected return of 20% and a standard deviation of 25%. The risk free rate is 10%. What is the reward-to-variability ratio?  A)...

Asset A has an expected return of 15% and a reward-to-variability (Sharpe) ratio of .4. Asset B has an expected return of 20% and a reward-to-variability (Sharpe) ratio of .3. A rational risk-averse investor would prefer which of the above assets?

Asset A has an expected return of 15% and a reward-to-variability (Sharpe) ratio of .4. Asset B has an expected return of 20% and a reward-to-variability...

The _______ decision should take precedence over the _____ decision.

The _______ decision should take precedence over the _____ decision.  A) asset allocation, stock selection B) choice of fad, mutual fund selection C)...

Risk that can be eliminated through diversification is called ______ risk.

Risk that can be eliminated through diversification is called ______ risk.  A) unique B) firm-specific C) diversifiable D) all of the above Answer:...

You invest $100 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 12% and a standard deviation of 10% and a treasury bill with a rate of return of 5%.

You invest $100 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 12% and a standard deviation...

An investor invests 40% of his wealth in a risky asset with an expected rate of return of 15% and a variance of 4% and 60% in a treasury bill that pays 6%. Her portfolio's expected rate of return and standard deviation are __________ and __________ respectively.

An investor invests 40% of his wealth in a risky asset with an expected rate of return of 15% and a variance of 4% and 60% in a treasury bill that pays...

If investors can only invest in a risky asset/portfolio and a risk-free asset, the line that connects the risk-free rate and the risky portfolio, P, is called __________.

If investors can only invest in a risky asset/portfolio and a risk-free asset, the line that connects the risk-free rate and the risky portfolio, P,...

The market risk premium is defined as ___________.

The market risk premium is defined as ___________.  A) the difference between the return on an index fund and the return on Treasury bills B)...

What must be the beta of a portfolio with E(rP) = 12.00%, if rf = 4% and E(rM) = 12%

What must be the beta of a portfolio with E(rP) = 12.00%, if rf = 4% and E(rM) = 12% Answer:...

Analysis of bond returns over a multiyear horizon, based on forecasts of the bond's yield to maturity and reinvestment rate of coupons is called ?

Analysis of bond returns over a multiyear horizon, based on forecasts of the bond's yield to maturity and reinvestment rate of coupons is called ? Answer:...

Treasury bonds paying an 8.50% coupon rate with semiannual payments currently sell at par value. What coupon rate would they have to pay in order to sell at par if they paid their coupons annually?

Treasury bonds paying an 8.50% coupon rate with semiannual payments currently sell at par value. What coupon rate would they have to pay in order to...

A bond with an annual coupon rate of 4.1% sells for $960. What is the bonds current yield ?

A bond with an annual coupon rate of 4.1% sells for $960. What is the bonds current yield ? Answer: 4....

Assume both portfolios A and B are well diversified, that E(rA) = 14.4% and E(rB) = 16.0%. If the economy has only one factor, and ßA = 1 while ßB = 1.2,What must be the risk-free rate?

Assume both portfolios A and B are well diversified, that E(rA) = 14.4% and E(rB) = 16.0%. If the economy has only one factor, and ßA = 1 while ßB =...

A stock has an expected return of 5%. What is its beta? Assume the risk-free rate is 6% and the expected rate of return on the market is 16%

A stock has an expected return of 5%. What is its beta? Assume the risk-free rate is 6% and the expected rate of return on the market is 16% Answer:...

An investor purchases one municipal bond and one corporate bond that pay rates of return of 5% and 6.6%, respectively. If the investor is in the 20% tax bracket, his after-tax rates of return on the municipal and corporate bonds would be, respectively, _____.

An investor purchases one municipal bond and one corporate bond that pay rates of return of 5% and 6.6%, respectively. If the investor is in the 20%...

Which of the following is an example of an agency problem?

Which of the following is an example of an agency problem? A) Managers engage in empire building. B) Managers protect their jobs by avoiding risky...

Which of the following are financial assets? I. Debt securities II. Equity securities III. Derivative securities

Which of the following are financial assets?I. Debt securitiesII. Equity securitiesIII. Derivative securities A) I only B) I and II only C) II and...

Real assets in the economy include all but which one of the following?

Real assets in the economy include all but which one of the following? A) Land B) Buildings C) Consumer durables D) Common stock Answer:...

____ is not a derivative security.

____ is not a derivative security. A) A share of common stock B) A call option C) A futures contract D) None of these options (All of the answers...

What is difference between real returns and nominal returns?

What is difference between real returns and nominal returns?  A) Aversion B) Inflation effect C) Risk premium D) Utility Answer: ...

If you require a real growth in the purchasing power of your investment of 8%, and you expect the rate of inflation over the next year to be 3%, what is the lowest nominal return that you would be satisfied with?

If you require a real growth in the purchasing power of your investment of 8%, and you expect the rate of inflation over the next year to be 3%, what...

The reward-to-variability or Sharpe ratio is given by ____.

The reward-to-variability or Sharpe ratio is given by ____.  A) the slope of the capital allocation line B) the second derivative of the capital...

Consider the following two investment alternatives. First, a risky portfolio that pays 15% rate of return with a probability of 60% or 5% with a probability of 40%. Second, a treasury bill that pays 6%. The risk premium on the risky investment is ____.

Consider the following two investment alternatives. First, a risky portfolio that pays 15% rate of return with a probability of 60% or 5% with a probability...

Which of the following terms is used to measure the total risk of an investment?

Which of the following terms is used to measure the total risk of an investment?  A) Aversion B) Expected return C) Probability distribution D)...

The buyer of a new home is quoted a mortgage rate of 0.5% per month. What is the EAR on the loan?

The buyer of a new home is quoted a mortgage rate of 0.5% per month. What is the EAR on the loan?  A) 0.50% B) 6.00% C) 6.17% D) 6.52% Answer:...

The buyer of a new home is quoted a mortgage rate of 0.5% per month. What is the APR on the loan?

The buyer of a new home is quoted a mortgage rate of 0.5% per month. What is the APR on the loan?  A) 0.50% B) 5.0% C) 6.0% D) 6.5% Answer:...

The standard deviation is the ______ of the variance.

The standard deviation is the ______ of the variance.  A) square root B) average C) median D) square Answer: ...

What is the dollar weighted return on a $100 investment that generates annual returns of $8, $9, $5, and $112, respectively in four years?

What is the dollar weighted return on a $100 investment that generates annual returns of $8, $9, $5, and $112, respectively in four years?  A)...

The dollar weighted return is the same as the ____.

The dollar weighted return is the same as the ____.  A) difference between cash inflows and cash outflows B) arithmetic average return C) geometric...

The arithmetic average of 12%, 15% and 20% is _________.

The arithmetic average of 12%, 15% and 20% is _________.  A) 15.67% B) 15% C) 17.2% D) 20% Answer: ...

The ______ average ignores compounding.

The ______ average ignores compounding.  A) geometric B) arithmetic C) both a and b above D) none of the above Answer: ...

The price of a stock is $55 at the beginning of the year and $53 at the end of the year. If the stock paid a $3 dividend what is the holding period return for the year?

The price of a stock is $55 at the beginning of the year and $53 at the end of the year. If the stock paid a $3 dividend what is the holding period...

Which of the following is not a component of the holding period return calculation?

Which of the following is not a component of the holding period return calculation? A) Beginning price B) Cash dividend C) Ending price D) Stock split Answer:...

The holding period return on a stock was 25%. Its ending price was $18 and its beginning price was $16. Its cash dividend must have been ____.

The holding period return on a stock was 25%. Its ending price was $18 and its beginning price was $16. Its cash dividend must have been ____.  A)...

You purchased a share of stock for $20. One year later you received $1 as dividend and sold the share for $24. Your holding-period return was ____.

You purchased a share of stock for $20. One year later you received $1 as dividend and sold the share for $24. Your holding-period return was ____.  A)...

The holding period return is the rate at which the investor's funds have grown over the ______.

The holding period return is the rate at which the investor's funds have grown over the ______.  A) last year B) last quarter C) last month D)...

The assets of a mutual fund are $25 million. The liabilities are $4 million. If the fund has 700,000 shares outstanding and pays a $3 dividend, what is the dividend yield?

The assets of a mutual fund are $25 million. The liabilities are $4 million. If the fund has 700,000 shares outstanding and pays a $3 dividend, what...

The Stone Harbor Fund is a closed-end investment company with a portfolio currently worth $300 million. It has liabilities of $5 million and 9 million shares outstanding. If the fund sells for $30 a share, what is its premium or discount as a percent of NAV?

The Stone Harbor Fund is a closed-end investment company with a portfolio currently worth $300 million. It has liabilities of $5 million and 9 million...

Mutual funds perform the function of ____ for their shareholders.

Mutual funds perform the function of ____ for their shareholders.  A) diversification B) professional management C) record keeping and administration D)...

Over the last 25 years, ______ outperformed the typical actively managed equity fund.

Over the last 25 years, ______ outperformed the typical actively managed equity fund.  A) equity index funds B) the Wilshire 5000 C) both a...

Specialized sector funds concentrate their investments in ___________.

Specialized sector funds concentrate their investments in ___________.  A) bonds of a particular maturity B) geographical segments of the real...

_______ are often called mutual funds.

_______ are often called mutual funds.  A) Unit investment trusts B) Open-end investment companies C) Closed-end investment companies D) All...

Real estate investment trusts are exempt from taxes as long as ________ percent of their taxable income is distributed to shareholders.

Real estate investment trusts are exempt from taxes as long as ________ percent of their taxable income is distributed to shareholders.  A) 50 B)...

__ is a false statement regarding open-end mutual funds.

__ is a false statement regarding open-end mutual funds.  A) They offer investors a guaranteed rate of return B) They offer investors a well...

Investors who wish to liquidate their holdings in a closed-end fund may _____________.

Investors who wish to liquidate their holdings in a closed-end fund may _____________.  A) sell their shares back to the fund at a discount B)...

Which of the following is not a type of managed investment company?

Which of the following is not a type of managed investment company?  A) unit investment trusts B) closed-end funds C) open-end funds D) All of...

Assume that you have recently purchased 10,000 shares in an investment company that is reporting $15 million in assets, $5 million in liabilities, and has 100,000 shares outstanding. What is the value of your investment?

Assume that you have recently purchased 10,000 shares in an investment company that is reporting $15 million in assets, $5 million in liabilities, and...

Assume that you have recently purchased 100 shares in an investment company. Upon examining the balance sheet, you note the firm is reporting $225 million in assets, $30 million in liabilities, and 10 million shares outstanding. What is the Net Asset Value (NAV) per share?

Assume that you have recently purchased 100 shares in an investment company. Upon examining the balance sheet, you note the firm is reporting $225 million...

The primary measurement unit used for assessing the value of one's stake in an investment company is ___

The primary measurement unit used for assessing the value of one's stake in an investment company is _____________.  A) Net Asset Value B) Average...

A contingent deferred sales charge is commonly called a ____.

A contingent deferred sales charge is commonly called a ____.  A) front-end load B) back-end load C) no load D) none of the above Answer:...

A ___ is a private investment pool, open to wealthy or institutional investors, that is exempt from SEC regulation and can therefore pursue more speculative and risky strategies than mutual funds.

A ___ is a private investment pool, open to wealthy or institutional investors, that is exempt from SEC regulation and can therefore pursue more speculative...

A ___ invests in a portfolio that is fixed and often unmanaged.

A ___ invests in a portfolio that is fixed and often unmanaged.  A) mutual fund B) money market fund C) managed investment company D) unit investment...

You purchased 100 shares of XYZ stock on margin at $60 per share from your broker. If the initial margin is 55% and the maintenance margin is 30%, how much must you borrow from your broker?

You purchased 100 shares of XYZ stock on margin at $60 per share from your broker. If the initial margin is 55% and the maintenance margin is 30%, how...

You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. You also place a stop-buy order at $60. What is your maximum possible loss?

You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. You also place a stop-buy order at $60. What is your maximum possible...

The _________ price is the price at which a dealer is willing to purchase a security.

The _________ price is the price at which a dealer is willing to purchase a security.  A) bid B) ask C) market D) none of the above Answer:...

Initial public offerings (IPOs) are usually _____ relative to market price of the stock traded in the secondary market immediately after IPOs.

Initial public offerings (IPOs) are usually _____ relative to market price of the stock traded in the secondary market immediately after IPOs.  A)...

The process of polling information from potential investors regarding their interest in a forthcoming initial public offering (IPO) is called _________.

The process of polling information from potential investors regarding their interest in a forthcoming initial public offering (IPO) is called _________.  A)...

Purchases of new issues of stock take place ____.

Purchases of new issues of stock take place ____.  A) at the desk of the Fed B) in the primary market C) in the secondary market D) none of the...

The Standard and Poors 500 is a(n) ____ weighted index.

The Standard and Poors 500 is a(n) ____ weighted index.  A) equally B) price C) value D) none of the above Answer: ...

What would you expect to have happened to the risk premium or yield spread on commercial paper immediately after September 11, 2001.

What would you expect to have happened to the risk premium or yield spread on commercial paper immediately after September 11, 2001.  A) No...

Treasury notes have initial maturities between ________years.

Treasury notes have initial maturities between ________years.  A) 2 and 4 B) 5 and 10 C) 10 and 30 D) 1 and 10 Answer: ...

Ownership of a call option entitles the holder to the ____ to ____ a specific stock, on or before a specific date, at a specific price.

Ownership of a call option entitles the holder to the ____ to ____ a specific stock, on or before a specific date, at a specific price. A) right,...

Ownership of a put option entitles the holder to the ____ to _____ a specific stock, on or before a specific date, at a specific price.

Ownership of a put option entitles the holder to the ____ to _____ a specific stock, on or before a specific date, at a specific price. A) right,...

A 15 year annual coupon bond issued by the State of Georgia pays 8% coupons. If you are in the 28% tax bracket, what is the coupon rate that a corporate bond must pay you in order for you to be indifferent between the two bonds?

A 15 year annual coupon bond issued by the State of Georgia pays 8% coupons. If you are in the 28% tax bracket, what is the coupon rate that a corporate...

In calculating the Dow Jones Industrial Average, the adjustment for a stock split occurs ___

In calculating the Dow Jones Industrial Average, the adjustment for a stock split occurs __________  A) automatically B) by adjusting the divisor C)...

Preferred stock is like long-term debt in that _____.

Preferred stock is like long-term debt in that _____.  A) it gives the holder voting power regarding the firm's management B) it promises to...

The Dow Jones Industrial Average is ___

The Dow Jones Industrial Average is __________  A) a price-weighted average B) a value-weight and average C) an equally-weighted average D)...

A 10 year Treasury bond with an 8% coupon rate should sell for ____ a 10 year Treasury bond with a 12% coupon rate, while everything else being equal.

A 10 year Treasury bond with an 8% coupon rate should sell for ____ a 10 year Treasury bond with a 12% coupon rate, while everything else being equal.  A)...

The interest rate charged by banks lending each other money through over-night borrowing is called the __________.

The interest rate charged by banks lending each other money through over-night borrowing is called the __________.  A) prime rate B) discount...

A __________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date.

A __________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date.  A) call option B)...

Treasury bills are financial instruments initially sold by __________ to raise funds.

Treasury bills are financial instruments initially sold by __________ to raise funds.  A) commercial banks B) the Federal Government C) large...

_______ is not a true statement regarding municipal bonds.

_______ is not a true statement regarding municipal bonds.  A) A municipal bond is a debt obligation issued by state or local governments. B)...

The bank-discount method used to compute bond price assumes ____ days in the year.

The bank-discount method used to compute bond price assumes ____ days in the year.  A) 260 B) 360 C) 365 D) 366 Answer: ...

Which of the following is not a money market instrument?

Which of the following is not a money market instrument?  A) treasury bill B) commercial paper C) preferred stock D) certificate of deposit Answer:...

If you purchase a stock for $50, receive dividends of $2, and sell the stock at the end of the year for $55, what is your holding period return?

If you purchase a stock for $50, receive dividends of $2, and sell the stock at the end of the year for $55, what is your holding period return? Answer:...

Surf City Software Company develops new surf forecasting software. It sells the software to Microsoft in exchange for 1000 shares of Microsoft common stock. Surf City Software has exchanged a _____ asset for a _____ asset in this transaction.

Surf City Software Company develops new surf forecasting software. It sells the software to Microsoft in exchange for 1000 shares of Microsoft common...

Holders of highly diversified investment portfolios most likely practice ______

Holders of highly diversified investment portfolios most likely practice __________  A) active management B) quantitative management C) qualitative...

Money Market securities are characterized by _________.

Money Market securities are characterized by _________.  A) a short term maturity B) a medium return to maturity C) a long term maturity D) none...

________ portfolio management calls for holding well-diversified portfolios without spending effort or resources attempting to improve investment performance through security analysis.

________ portfolio management calls for holding well-diversified portfolios without spending effort or resources attempting to improve investment performance...

Financial intermediaries exist because small investors cannot efficiently __________.

Financial intermediaries exist because small investors cannot efficiently __________.  A) diversify their portfolios B) gather information C)...

An example of a financial asset is __________.

An example of a financial asset is __________.  A) a patient B) a Treasury bill C) land D) none of the above Answer: ...

_______ are real assets.

_______ are real assets.  A) Bonds B) Machines C) Stocks D) None of the above Answer: ...

_____ are examples of financial intermediaries.

______ are examples of financial intermediaries.  A) Commercial banks B) Insurance companies C) Investment companies D) All of the above Answer:...