Chapter 10/11 Quiz Review Flashcards
The lower the standard deviation of returns on a security, the _____ the expected rate of return and the _____ the risk.
A) Lower; higher
B) Higher; lower
C) Lower; lower
D) Higher; higher
Lower; Lower
On a particular risky investment, investors require an excess return of 7 percent in addition to the risk-free rate of 4 percent. What is this excess return called?
A) Inflation premium
B) Average return
C) Real return
D) Required return
E) Risk premium
Risk premium.
The rate of return on which one of the following has a risk premium of 0%?
A) Intermediate-term government bonds
B) U.S. Treasury bills
C) Long-term government bonds
D) Large-company stocks
E) Long-term corporate bonds
U.S. Treasury Bills
Which one of these represents systematic risk?
A) Closure of a major retail chain of stores
B) Major layoff by a regional manufacturer of power boats
C) Product recall by one manufacturer
D) Increase in consumption created by a reduction in personal tax rates
E) Surprise firing of a firm’s chief financial officer
Increase in consumption created by a reduction in personal tax rates.
New Labs just announced that it has received a patent for a product that will eliminate all flu viruses. This news is totally unexpected and viewed as a major medical advancement. Which one of the following reactions to this announcement indicates the market for New Labs stock is efficient?
A) The value of all stocks suddenly increase and then level off at their higher values.
B) The price of New Labs stock increases rapidly to a higher price and then remains at that price.
C) The price of New Labs stock increases rapidly and then settles back to its pre-announcement level.
D) All stocks quickly increase in value and then all but New Labs stock fall back to their original values.
E) The price of New Labs stock remains unchanged.
The price of New Labs stock increases rapidly to a higher price and then remains at that price.
Standard deviation measures _____________blank risk while beta measures _____________blank risk.
A) Asset-specific; market
B) Total; unsystematic
C) Unsystematic; systematic
D) Total; systematic
E) Systematic; unsystematic
Total; systematic
Mary owns a risky stock and anticipates earning 16.5 percent on her investment in that stock. Which one of the following best describes the 16.5 percent rate?
A) Real return
B) Systematic return
C) Market rate
D) Expected return
E) Risk premium
Expected return
The slope of the security market line represents the:
A) Market risk premium.
B) Risk-free rate.
C) Market rate of return.
D) Beta coefficient.
E) Risk premium on an individual asset.
Market risk premium.
The amount of systematic risk present in a particular risky asset relative to that in an average risky asset is measured by the:
A) Squared deviation.
B) Beta coefficient.
C) Standard deviation.
D) Mean.
E) Variance.
Beta coefficient.
An efficient capital market is best defined as a market in which security prices reflect which one of the following?
A) The historical arithmetic rate of return
B) All available information
C) The historical geometric rate of return
D) Current inflation
E) A risk premium
All available information.
