Exam 13: Return, Risk, and the Security Market Line

A) A
B) B
C) C
D) D
E) E

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A) an increase in the portfolio beta
B) a decrease in the portfolio beta
C) an increase in the portfolio rate of return
D) an increase in the portfolio standard deviation
E) a decrease in the portfolio standard deviation

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A) investors panic causing security prices around the globe to fall precipitously
B) a flood washes away a firm's warehouse
C) a city imposes an additional one percent sales tax on all products
D) a toymaker has to recall its top-selling toy
E) corn prices increase due to increased demand for alternative fuels

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A) portfolio
B) nondiversifiable
C) market
D) unsystematic
E) total

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A) 11.47 percent
B) 12.38 percent
C) 16.67 percent
D) 24.29 percent
E) 25.82 percent

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A) 11.13 percent
B) 11.86 percent
C) 12.25 percent
D) 13.32 percent
E) 14.40 percent

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A) .000709
B) .000848
C) .001475
D) .001554
E) .001568

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A) concentrating an investment in two or three large stocks will eliminate all of the unsystematic risk.
B) concentrating an investment in three companies all within the same industry will greatly reduce the systematic risk.
C) spreading an investment across five diverse companies will not lower the total risk.
D) spreading an investment across many diverse assets will eliminate all of the systematic risk.
E) spreading an investment across many diverse assets will eliminate some of the total risk.

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A) 1.57 percent
B) 2.03 percent
C) 2.89 percent
D) 3.42 percent
E) 4.01 percent

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A) can be effectively eliminated by portfolio diversification.
B) is compensated for by the risk premium.
C) is measured by beta.
D) is measured by standard deviation.
E) is related to the overall economy.

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A) reward-to-risk ratio
B) market standard deviation
C) beta coefficient
D) risk-free interest rate
E) market risk premium

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A) -3.40 percent
B) -2.25 percent
C) 1.65 percent
D) 2.60 percent
E) 3.50 percent

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Unsystematic,or diversifiable,risk affec...

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A) adding the risk-free rate of return to the inflation rate.
B) adding the risk-free rate of return to the market rate of return.
C) subtracting the risk-free rate of return from the inflation rate.
D) subtracting the risk-free rate of return from the market rate of return.
E) multiplying the risk-free rate of return by a beta of 1.0.

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A) average arithmetic return.
B) expected return.
C) market rate of return.
D) internal rate of return.
E) cost of capital.

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A) All announcements by a firm affect that firm's unexpected returns.
B) Unexpected returns over time have a negative effect on the total return of a firm.
C) Unexpected returns are relatively predictable in the short-term.
D) Unexpected returns generally cause the actual return to vary significantly from the expected return over the long-term.
E) Unexpected returns can be either positive or negative in the short term but tend to be zero over the long-term.

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A) 39.85 percent
B) 42.86 percent
C) 44.41 percent
D) 48.09 percent
E) 52.65 percent

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A) An investor is rewarded for assuming unsystematic risk.
B) Eliminating unsystematic risk is the responsibility of the individual investor.
C) Unsystematic risk is rewarded when it exceeds the market level of unsystematic risk.
D) Beta measures the level of unsystematic risk inherent in an individual security.
E) Standard deviation is a measure of unsystematic risk.

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