Test Bank Chapter 11 PDF

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Chapter 11Risk and Return: The Capital Asset Pricing ModelMultiple Choice Questions When a security is added to a portfolio the appropriate return and risk contributions are: A. the expected return of the asset and its standard deviation. B. the most probable return and the beta. C. the expected ret...

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Chapter 11 - Risk and Return: The Capital Asset Pricing Model

Chapter 11 Risk and Return: The Capital Asset Pricing Model

Multiple Choice Questions 1. When a security is added to a portfolio the appropriate return and risk contributions are: A. the expected return of the asset and its standard deviation. B. the most probable return and the beta. C. the expected return and the beta. D. the most probable return and its standard deviation.

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Topic: 11-03 Expected Return and Variance

2. When stocks with the same expected return are combined into a portfolio: A. the expected return of the portfolio is less than the average expected return of the stocks. B. the expected return of the portfolio is greater than the average expected return of the stocks. C. the expected return of the portfolio is equal to the average expected return of the stocks. D. there is no relationship between the expected return of the portfolio and the expected return of the stocks.

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Topic: 11-03 Expected Return and Variance

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Chapter 11 - Risk and Return: The Capital Asset Pricing Model

3. Covariance measures the interrelationship between two securities in terms of: A. both expected return and direction of return movement. B. both size and direction of return movement. C. the standard deviation of returns. D. both expected return and size of return movements. E. the correlations of returns.

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Topic: 11-02 Expected Return, Variance, and Covariance

4. GenLabs has been a hot stock the last few years, but is risky. The expected returns for GenLabs are highly dependent on the state of the economy as follows:

State of Economy Depression Recession Mild Slowdown Normal Broad Expansion Strong Expansion

Probability .05 .10 .20 .30 .20 .15

The expected return on GenLabs is: A. 20.5% B. 12.5% C. 8.5% D. 3.3%

Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Medium Topic: 11-02 Expected Return, Variance, and Covariance

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GenLabs Returns -50% -15% 5% 15% 25% 40%

Chapter 11 - Risk and Return: The Capital Asset Pricing Model

5. GenLabs has been a hot stock the last few years, but is risky. The expected returns for GenLabs are highly dependent on the state of the economy as follows:

State of Economy Depression Recession Mild Slowdown Normal Broad Expansion Strong Expansion

Probability .05 .10 .20 .30 .20 .15

The variance and standard deviation of GenLabs returns are: A. 0.042875; 0.2070628. B. 0.0714612; 8.450.845142. C. 0.093958; 0.3065169. D. 0.112750; 0.335809.

Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Medium Topic: 11-02 Expected Return, Variance, and Covariance

6. Systematic risk is measured by: A. the mean. B. beta. C. the geometric average. D. the standard deviation.

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Topic: 11-06 The Example of Supertech and Slowpoke

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GenLabs Returns -50% -15% 5% 15% 25% 40%

Chapter 11 - Risk and Return: The Capital Asset Pricing Model

7. If the correlation between two stocks is -1, the returns: A. generally move in the same direction. B. move perfectly opposite one another. C. are unrelated to one another as it is...