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WorksheetsRisk and Return
Total questions: 15
Worksheet time: 37mins
Which of the following is an example of systematic risk?
BHP Billiton posts lower than expected earnings.
Woolworths announces record earnings.
The government raises interest rates unexpectedly.
Coca-Cola announces higher than expected earnings
Investors can eliminate what type of risk by diversifying?
Systematic risk
Unsystematic risk
Beta risk
Total risk
Ahmad is considering investing in stocks. Which is the less risky investment?
Stock A: SD = 10%; E(R) = 10%
Stock B: SD = 6%; E(R) = 10%
Stock C: SD = 8%; E(R) = 12%
Stock D: SD = 20%; E(R) = 24%
Probability = 15%; Return = -5%
Probability = 20%; Return = 10%
Probability = 30%; Return = 15%
Probability = 35%; Return = 25%
What is the expected rate of return on the investment?
15.4%
14.5%
15.5%
16%
Below are all types of return except:
Actual return
Expected return
Possible return
Required return
From the probability distribution provided, the expected return of the asset is closest to:
9%
6.7%
10%
20%
Consider the following 4 assets. If you have to select only one, which one would you pick if you are risk-averse?
D
A
B
C
If employees of a company go on strike, this is an example of which types of investment risk?
company risk
industry risk
political risk
inflation risk
Plunging oil prices is an example of which of the following types of investment risk?
company risk
industry risk
political risk
inflation risk
Investment A has an expected return of 15% per year, while Investment B has an expected return of 12% per year. A rational investor will choose
Investment A because of the higher expected return.
Investment B because a lower return means lower risk.
Investment A if A and B are of equal risk.
Investment A only if the standard deviation of returns for A is higher than the standard deviation of returns for B.
You are considering investing in Ford Motor Company. Which of the following are examples of diversifiable risk?
I. Risk resulting from possibility of a stock market crash.
II. Risk resulting from uncertainty regarding a possible strike against Ford.
III. Risk resulting from an expensive recall of a Ford product.
IV. Risk resulting from interest rates decreasing.
I only
I and IV
I, II, III, IV
II, III
Which one of the following guarantees is offered to common stock investors?
Guarantee to receive dividends
Guarantee to receive capital gains
Guarantee only to receive a refund of principal
No guarantees of any form
The wider the dispersion of returns on a stock, the:
lower the expected rate of return
higher the standard deviation
lower the real rate of return
lower the variance
A stock is expected to return 11% in a normal economy, 19% if the economy booms, and lose 8% if the economy moves into a recessionary period. Economists predict a 65% chance of a normal economy, a 25% chance of a boom, and a 10% chance of a recession. What is the expected return on the stock?
11.10%
12.06%
11.98%
11.23%
