# BU340 Lesson 8 Exam SCORE 100 PERCENT

BU340 Lesson 8 Exam SCORE 100 PERCENT

Online Exam 8

Question 1

0 / 5 points

Which of the statements below is true?

Question options:

Investors want to maximize return   and maximize risk.

Investors want to maximize return and minimize risk. (*This is correct)

Investors want to minimize return   and maximize risk.

Investors want to minimize return   and minimize risk.

Question 2

5 / 5 points

The practice of not putting all of your eggs in one basket is an illustration of:

Question options:

variance.

diversification.

portion control.

expected return.

Question 3

5 / 5 points

The security market line has:

Question options:

a positive slope.

a negative slope.

no slope.

a beta of 1.0.

Question 4

5 / 5 points

Given an expected market return of 12.0%, a beta of 0.75 for Benson Industries, and a risk-free rate of 4%, what is the expected return for Benson Industries?

Question options:

13%

10%

9%

4%

Question 5

5 / 5 points

For most stocks, the correlation coefficient with other stocks is:

Question options:

positive.

negative.

zero.

The distribution of correlation   coefficients between stocks is uniform from -1.0 to +1.0.

Question 6

5 / 5 points

Stocks A, B, C, and D have standard deviations, respectively, of 20%, 5%, 10%, and 15%. Which one is the riskiest?

Question options:

Stock A

Stock B

Stock C

Stock D

Question 7

5 / 5 points

Travis bought a share of stock for \$31.50 that paid a dividend of \$.85 and sold six months later for \$27.65. What was his dollar profit or loss and holding period return?

Question options:

-\$3.00, -9.52%

-\$3.85, -12.22%

-\$.85, -2.70%

-\$3.85, -9.52%

Question 8

5 / 5 points

__________ may be defined as a measure of uncertainty in a set of potential outcomes for an event in which there is a chance for some loss.

Question options:

Diversification

Risk

Uncertainty

Collaboration

Question 9

5 / 5 points

The __________ is the intercept on the security market line.

Question options:

prime rate

risk-free rate

market rate of return

beta

Question 10

5 / 5 points

Which of the following investments is considered to be default risk-free?

Question options:

Currency options

AAA-rated corporate bonds

Common stock

Treasury bills

Question 11

5 / 5 points

Correlation, a standardized measure of how stocks perform relative to one another in different states of the economy, has a range from:

Question options:

0.0 to +10.0.

0.0 to +1.0.

-1.0 to +1.0.

There is no range; correlation is   a calculated number that can take on any value.

Question 12

5 / 5 points

Jarvis bought a share of stock for \$15.75 that paid a dividend of \$.45 and sold three months later for \$18.65. What was his dollar profit or loss and holding period return?

Question options:

\$2.90, 18.41%

\$3.35, 21.27%

-\$2.90, -18.41%

\$.45, 2.86%

Question 13

5 / 5 points

Find the variance for a security that has three one-year returns of 5%, 10%, and 15%.

Question options:

10%

16.67%

25%

30%

Question 14

5 / 5 points

Find the variance for a security that has three one-year returns of -5%, 15%, and 20%.

Question options:

175%

75%

58.33%

25%

Question 15

5 / 5 points

Use the following table:

States of the Economy

Probability   of the State

3-Month   T-Bill

Large-Company   Stock

Small-Company   Stock

Boom

0.3

4

10

30

0.5

4

5

20

Recession

0.2

4

0

10

What is the difference between the variances for large- and small-company stocks?

Question options:

40.25%

36.75%

27.30%

14.90%

Question 16

5 / 5 points

The correlation coefficient, a measurement of the comovement between two variables, has what range?

Question options:

From 0.0 to +10.0

From 0.0 to +1.0

From -1.0 to +10.0

From =1.0 to -1.0

Question 17

0 / 5 points

Stock

A

B

C

D

Expected Return

5%

5%

7%

6%

Standard Deviation

10%

12%

12%

11%

Which of the following statements is true?

Question options:

A is a better investment than B.

B is a better investment than C.

C is a better investment than D.

D is a better investment than C.

Question 18

5 / 5 points

Unsystematic risk:

Question options:

is also known as nondiversifiable   risk.

can be diversified away.

is system-wide risk.

is equal to 2 times the systematic   risk.

Question 19

5 / 5 points

Which of the following statements is true about variance?

Question options:

Variance describes how spread out   a set of numbers or values are around its mean or average.

Variance is essentially the   variability from the average.

The larger the variance, the   greater the dispersion.

All of the above statements are   true.

Question 20

5 / 5 points

Assume the following information about the market and JumpMasters’ stock. JumpMasters’ beta = 1.50, the risk-free rate is 3.5%, the market risk premium is 10%. Using the SML, what is the expected return for JumpMasters’ stock?

Question options:

7.5%

13.5%

18.5%

27%

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