Finance Ch8

The normal distribution is a symmetrical distribution that is described by its: mean and standard deviation.
An asset with a beta of 1.6 will have an expected return of __________ when the risk-free rate is 4% and the expected return on the market is 12%. 16.8%
The equity market risk premium is the: return of equities over T-bills.
According to the security market line, a security with a beta of 1.5 should provide a risk premium that is _________ times the risk premium existing for the market as a whole. 1.5
Over the past 20 years, the average annual return for ShortStop Baseball Gear has been 9% and the standard deviation has been 4%. Given this information you know that the: 95% prediction interval is from 1% to 17%.
A stock’s holding period return represents: the total return earned over a specific period through buying and selling an asset.
If the required return for a security is 15% and the risk-free rate is 6%, the risk premium is: 9%
You purchased Hobo Hats stock last year for $60 a share. Today, you received $2 a share dividend and immediately sold the stock for $63. Your realized return, or holding period return, was _________. 8.33%
You are considering two securities. Security A has a historical average annual return of 7% and a standard deviation of 3%. Security B has a historical average annual return of 7% and a standard deviation of 9%. From this information you can conclude that: Security B is more risky than Security A.
Which of the following is the best description of systematic risk? any risk that will impact the value of all assets simultaneously
Under the capital asset pricing model, the relevant risk is: systematic risk
The risk of a portfolio is best described as the: standard deviation of expected portfolio returns.
Diversification is the process of: combining assets to reduce risk and/or increase returns
Which of the following correlation coefficients (CorrAB) would generate the most benefit in terms of risk reduction for a 2-asset portfolio that consists of 40% in Asset A and 60% in Asset B? -.65
Assume you have the following assets, expected returns, and betas: Asset Expected returns BetaA 16% 1.2B 14% 1.0C 21% 1.6 What is the beta of a portfolio consisting of 25% invested in Asset A, 45% in Asset B, and 30% in Asset C? Bp = .25(1.2) + .45(1.0) + .30(1.6) = .30 + .45 + .48 = 1.23.
The risk-return tradeoff principle in finance is: the expectation of receiving higher returns for higher risk investments
An investor’s required rate of return should be a function of the: risk-free rate of return plus a risk premium for the stock’s systematic risk
The correlation coefficient is a measure of: the degree of variation between asset returns.
The beta of a portfolio is the: slope of the risk-return line, or the CAPM risk measure.
What is the percentage return of a stock that was purchased for $45 and sold one year later for $55 if the stock also paid $3 in dividends over that time period? (3+55-45)/45=28.9%
The beta for a portfolio is determined by calculating: a weighted average of individual stock betas where the weights equal the percentage invested in each stock.
Firm-specific risk is the: diversification risk of an assets.
The normal distribution is a symmetrical distribution that is described by its: mean and standard deviation.
The __________ indicates the tendency of historical returns to be different from their average and how far away from the average they tend to be. variance
__________ risk is the only risk that matters to investors with broadly diversified portfolios. systematic
The correlation coefficient is a measure of: the degree of variation between asset return

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