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chap 11 6767

Total questions: 37

Worksheet time: 19mins

Name
Class
Date
1.

Which statement is true?

a)

Portfolio return must be positive

b)

Average beta must equal 1

c)

Portfolio beta must be 1

d)

Portfolio weights sum to 1

e)

Portfolio SD equals 1

2.

Systematic risk is:

a)

Total risk

b)

Risk affecting many assets

c)

Diversifiable risk

d)

Firm-specific risk

e)

Management risk

3.

Unsystematic risk EXCEPT:

a)

Unrewarded

b)

Diversifiable

c)

Unique

d)

Asset-specific

e)

Market risk

4.

CAPM says expected return depends on:

a)

Unique risk

b)

Diversifiable risk

c)

Market risk

d)

Asset-specific risk

e)

Unsystematic risk

5.

Best example of unsystematic risk:

a)

Inflation

b)

Tax rate change

c)

Dollar value change

d)

Warehouse fire

e)

Consumer spending rise

6.

Which is systematic risk?

a)

Firm layoffs

b)

Tax cut increasing spending

c)

CFO fired

d)

Store closures

e)

Product recall

7.

Best systematic risk example:

a)

Gas discovery

b)

Import decrease

c)

Export increase

d)

GDP decrease

e)

Bonus cuts

8.

Best unsystematic risk example:

a)

Economic collapse

b)

Interest rate hike

c)

Firm cost increase

d)

Inflation drop

e)

Tax increase

9.

Investing in many assets to reduce risk:

a)

Diversification

b)

Systematic

c)

Unsystematic

d)

SML

e)

CAPM

10.

Diversification MUST:

a)

Raise risk premium

b)

Set beta = 1

c)

Raise security risk

d)

Reduce unique risk

e)

Reduce systematic risk

11.

Diversification eliminates:

a)

All risk

b)

Risk premium

c)

Unsystematic risk

d)

Market risk

e)

Risk reward

12.

Portfolio beta range:

a)

0 to 1

b)

1 to market beta

c)

Lowest beta to market beta

d)

Lowest beta to highest beta

e)

Market beta to highest beta

13.

Portfolio weights based on:

a)

Market value

b)

Shares owned

c)

Share price

d)

Cost per share

14.

Betas range .74 to 1.51. Portfolio beta:

a)

Must be 1

b)

Between .74 and 1.51

c)

Geometric average

d)

Less than market beta

e)

Between 0 and 1

15.

Correct statement:

a)

Betas range −1 to +1

b)

T-bills beta = 1

c)

Market beta = 0

d)

Portfolio beta is weighted average

16.

Adding risky asset to diversified portfolio:

a)

Lowers return

b)

May affect beta

c)

Raises beta

d)

Raises unsystematic risk

e)

No effect

17.

Main reason to diversify:

a)

Eliminate unsystematic risk

b)

Eliminate systematic risk

c)

Increase returns

d)

Increase risk

18.

Positive return, less risk than market → beta:

a)

0

b)

1

c)

Between 0 and 1

d)

Greater than 1

19.

Systematic risk is:

a)

Eliminated by diversification

b)

Firm-specific

c)

Measured by beta

d)

Measured by SD

20.

Beta = 0 portfolio:

a)

Treasury bills only

b)

Market portfolio

c)

One stock

d)

Zero variance portfolio

21.

SD measures ___ risk; beta measures ___ risk:

a)

Systematic; unsystematic

b)

Unsystematic; systematic

c)

Total; unsystematic

d)

Total; systematic

e)

Asset-specific; market

22.

Diversification principle:

a)

2–3 stocks eliminate risk

b)

Same-industry stocks cut systematic risk

c)

Many assets reduce total risk

d)

Diversifying doesn’t reduce risk

e)

Eliminates systematic risk

23.

Correct statements:

a)

Beta measures non-diversifiable risk

b)

Risk premium rises with diversifiable risk

c)

Systematic = non-diversifiable

d)

Diversifiable risks are unavoidable

24.

Systematic risk relative to market measured by:

a)

Squared deviation

b)

SD

c)

Beta

d)

Variance

25.

ABC: SD 25%, β 0.85; XYZ: SD 15%, β 1.25. True?

a)

ABC more market risk

b)

Both fairly priced

c)

ABC higher expected return

d)

ABC more volatile

26.

CAPM expected return NOT affected by:

a)

Market risk premium

b)

Risk-free rate

c)

Standard deviation

d)

Market return

e)

Beta

27.

CAPM expected return NOT affected by:

a)

Risk-free rate

b)

Risk premium

c)

Beta

d)

Unique risk

e)

Market return

28.

CAPM:

a)

Rewards total risk

b)

Market beta = 0

c)

Uses security’s movement with market

d)

Only for portfolios

29.

Compensation for unsystematic risk:

a)

Beta × market return

b)

Market risk premium

c)

Beta × risk premium

d)

Zero

e)

Risk-free rate

30.

SML slope equals:

a)

Market risk premium

b)

Risk-free rate

c)

Beta

d)

Asset risk premium

e)

Market return

31.

SML shows relationship between:

a)

Beta & SD

b)

Expected return & beta

c)

Systematic & unsystematic risk

d)

Nominal & real returns

e)

Risk premium & beta

32.

Correct statement:

a)

30 stocks → beta 1

b)

β 1.12 left of market

c)

Underpriced plots above SML

d)

Risk-free at origin

33.

Correct statement:

a)

Underpriced below SML

b)

β 0.93 right of market

c)

β 0.99 above SML if correct

d)

β 1.54 on SML if correct

e)

Risk-free at origin

34.

Right & below SML → ___ risk and ___:

a)

More; overpriced

b)

More; underpriced

c)

Less; overpriced

d)

Less; underpriced

e)

Less; correct

35.

Which stock is undervalued (graph)?

a)

A

b)

B

c)

C

d)

D

36.

Diversification graph shows:

a)

Total risk always falls

b)

Diversifiable risk falls as stocks increase

c)

Diversifiable risk nearly disappears

d)

Market risk disappears

37.

Lockheed vs Palantir (CAPM):

a)

Buy before ex-dividend date

b)

Dividends → higher return

c)

Higher beta → higher expected return

d)

Same return under EMH

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