You are thinking of adding one of two investments to an already well diversified portfolio.
Security A Security B
Expected return = 12% Expected return = 12%
Standard deviation of returns = 20.9% Standard deviation of returns = 10.1%
Beta = .8 Beta = 2
If you are a risk-averse investor
A) security A is the better choice.
B) security B is the better choice.
C) either security would be acceptable.
D) cannot be determined with information given.
The market (systematic) risk associated with an individual stock is most closely identified with the
A) variance of the returns of the stock.
B) variance of the returns of the market.
C) beta of the stock.
D) standard deviation of the stock.
Which of the following is NOT an example of systematic risk?
A) Inflation
B) Recession
C) Management risk
D) Interest rate risk
What type of risk can investors reduce through diversification?
A) All risk
B) Systematic risk only
C) Unsystematic risk only
D) Uncertainty
Which of the following statements is true?
A) A stock with a beta less than zero has no exposure to systematic risk.
B) A stock with a beta greater than 1.0 has lower nondiversifiable risk than a stock with a beta of 1.0.
C) A stock with a beta less than 1.0 has lower nondiversifiable risk than a stock with a beta of 1.0.
D) A stock with a beta less than 1.0 has higher nondiversifiable risk than a stock with a beta of 1.0.
Currently, the expected return on the market is 12.5% and the required rate of return for Alpha, Inc. is 12.5%. Therefore, Alpha's beta must be
A) less than 1.0.
B) greater than 1.0.
C) equal to 1.0.
D) unknown based on the information provided.
Investment risk is
A) the probability of achieving a return that is greater than what was expected.
B) the probability of achieving a beta coefficient that is less than what was expected.
C) the probability of achieving a return that is less than what was expected.
D) the probability of achieving a standard deviation that is less than what was expected.
Which of the following statements is true?
A) Systematic, or market, risk can be reduced through diversification.
B) Both systematic and unsystematic risk can be reduced through diversification.
C) Unsystematic, or company, risk can be reduced through diversification.
D) Neither systematic nor unsystematic risk can be reduced through diversification.
Which of the following is a good measure of the relationship between an investment's returns and the market's returns?
A) The beta coefficient
B) The standard variation
C) The CPI
D) The S&P 500 Index
Which of the following is generally used to measure the market when calculating betas?
A) The Dow Jones Industrial Average
B) The Standard & Poors 500 Index
C) The Value Line Quantam Index
D) The Case Schiller Housing Index
