BU340 Lesson 8 Exam SCORE 100 PERCENT

**Online Exam 8**

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**Question 1**

**0 / 5 points**

**Which of the statements below is true?**

**Question options:**

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**Investors want to maximize return and maximize risk.**

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

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**Investors want to minimize return and maximize risk.**

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**Investors want to minimize return and minimize risk.**

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**Question 2**

**5 / 5 points**

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

**Question options:**

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**variance.**

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**diversification.**

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**portion control.**

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**expected return.**

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**Question 3**

**5 / 5 points**

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**The security market line has:**

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**a positive slope.**

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**a negative slope.**

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**no slope.**

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**a beta of 1.0.**

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**Question 4**

**5 / 5 points**

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**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:**

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**13%**

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**10%**

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**9%**

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**4%**

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**Question 5**

**5 / 5 points**

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

**Question options:**

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**positive.**

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**negative.**

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**zero.**

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

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**Question 6**

**5 / 5 points**

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

**Question options:**

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**Stock A**

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**Stock B**

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**Stock C**

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**Stock D**

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**Question 7**

**5 / 5 points**

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**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:**

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**-$3.00, -9.52%**

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**-$3.85, -12.22%**

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**-$.85, -2.70%**

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**-$3.85, -9.52%**

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**Question 8**

**5 / 5 points**

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**__________ 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:**

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**Diversification**

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**Risk**

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**Uncertainty**

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**Collaboration**

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**Question 9**

**5 / 5 points**

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**The __________ is the intercept on the security market line.**

**Question options:**

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**prime rate**

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**risk-free rate**

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**market rate of return**

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**beta**

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**Question 10**

**5 / 5 points**

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

**Question options:**

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**Currency options**

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**AAA-rated corporate bonds**

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**Common stock**

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**Treasury bills**

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**Question 11**

**5 / 5 points**

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

**Question options:**

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**0.0 to +10.0.**

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**0.0 to +1.0.**

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**-1.0 to +1.0.**

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

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**Question 12**

**5 / 5 points**

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**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:**

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**$2.90, 18.41%**

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**$3.35, 21.27%**

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**-$2.90, -18.41%**

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**$.45, 2.86%**

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**Question 13**

**5 / 5 points**

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

**Question options:**

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**10%**

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**16.67%**

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**25%**

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**30%**

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**Question 14**

**5 / 5 points**

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

**Question options:**

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**175%**

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**75%**

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**58.33%**

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**25%**

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**Question 15**

**5 / 5 points**

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**Use the following table:**

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**States of the Economy**

**Probability of the State**

**3-Month T-Bill**

**Large-Company Stock**

**Small-Company Stock**

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**Boom**

**0.3**

**4**

**10**

**30**

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**Steady**

**0.5**

**4**

**5**

**20**

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**Recession**

**0.2**

**4**

**0**

**10**

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

**Question options:**

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**40.25%**

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**36.75%**

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**27.30%**

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**14.90%**

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**Question 16**

**5 / 5 points**

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

**Question options:**

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**From 0.0 to +10.0**

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**From 0.0 to +1.0**

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**From -1.0 to +10.0**

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**From =1.0 to -1.0**

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**Question 17**

**0 / 5 points**

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**Stock**

**A**

**B**

**C**

**D**

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**Expected Return**

**5%**

**5%**

**7%**

**6%**

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**Standard Deviation**

**10%**

**12%**

**12%**

**11%**

**Which of the following statements is true?**

**Question options:**

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**A is a better investment than B.**

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**B is a better investment than C.**

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**C is a better investment than D.**

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**D is a better investment than C.**

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**Question 18**

**5 / 5 points**

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**Unsystematic risk:**

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**is also known as nondiversifiable risk.**

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**can be diversified away.**

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**is system-wide risk.**

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**is equal to 2 times the systematic risk.**

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**Question 19**

**5 / 5 points**

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**Which of the following statements is true about variance?**

**Question options:**

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

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**Variance is essentially the variability from the average.**

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**The larger the variance, the greater the dispersion.**

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**All of the above statements are true.**

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**Question 20**

**5 / 5 points**

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**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:**

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**7.5%**

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**13.5%**

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**18.5%**

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**27%**