Richard has two investment opportunities. He can invest in The Sunglasses Company or The Umbrella Company. If he diversifies his investment by putting 50% of his money into each company, what is the expected return and standard deviation of his portfolio? State of the Economy Probability of the State Expected Return Sunglasses Company Expected Return […]
For most stocks, the correlation coefficient with other stocks is ________. A) positive B) negative C) zero D) The distribution of correlation coefficients between stocks is uniform from -1.0 to +1.0. ANSWER Answer: A
The type of risk that can be diversified away is called ________. A) unsystematic risk B) systematic risk C) nondiversifiable risk D) system-wide risk ANSWER Answer: A
________ is risk that cannot be diversified away. A) Unsystematic risk B) Systematic risk C) Firm-specific risk D) Diversifiable risk ANSWER Answer: B
Unsystematic risk A) is also known as nondiversifiable risk. B) can be diversified away. C) is system-wide risk. D) is equal to 2 times the systematic risk. ANSWER Answer: B
The company that prints unemployment insurance checks is named Countercyclical Printing, Inc Countercyclical Printing’s beta is -0.75, the risk free rate is 8%, and the risk premium on the market is 7%. What is the equilibrium expected rate of return on Countercyclical Printing’s stock? A) -8.75% B) -3.25% C) 2.75% D) 4.50% E) 5.25% […]
The purpose of work-in-process inventory is to ensure that machine failures and work stoppages in one operation do not affect other operations. Indicate whether the statement is true or false ANSWER TRUE
For purposes of maximum portfolio diversification, which of the following would provide the greatest diversification? A) Security A with a correlation coefficient of -0.0 B) Security B with a correlation coefficient of 0.0 C) Security C with a correlation coefficient of -0.50 D) Security D with a correlation coefficient of 0.50 ANSWER Answer: […]
Consider the data on expected returns and betas for a variety of assets in the table below. What is the expected return on shares of Bank of America using the SML? Asset Expected Return Beta Bank of America 0.9 Risk Free Asset 4% 0 Market Portfolio 10% 1 A) 5.4% B) 6.0% C) 8.2% D) […]
Which of the following is not a characteristic of an efficient market? A) Information is rapidly reflected in market prices. B) The market has a large number of buyers and sellers. C) Prices vary for a single asset or commodity as a result of differences in people’s willingness to pay. D) Prices reflect the intrinsic […]
