FIN 571 Week 5 Practice Chapter 11 and 12 Question
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If an investor purchases a security for $12.30, then sells it at a later date for $14.10, her capital gain would be ____________.
An investor purchases a share of stock today for $27.50 and holds it for a year. During the year the stock pays $4.50 in dividends. The investor sells the stock at the end of the year for $29.25. What is her percentage return? (Record your answer as a percent rounded to one decimal place.)
U.S. Treasury bills are nearly a risk-free investment because:
If an investor purchases a security today for $9.00 and sells it tomorrow for $7.50, his capital gain will be _________.
Which of the following expressions correctly calculates an investor's percentage return on a share of stock?
Which of the following stock indexes includes the stocks of 500 major companies in proportion to the number of their shares that have been issued to investors?
Which of the following statements is true regarding the risks undertaken by investors in U.S. Treasury bills?
The extra annual return from investing in long versus short-term Treasury securities is known as:
Which of the following statements are true regarding the risks undertaken by investors in common stock?
The expected return on the stock market can be expressed as the sum of the _________ and a __________.
The appropriate cost of capital to be used to discount risk-free projects is ________.
Variance and standard deviation are measures of __________.
Beating the performance of which of the indexes below is usually the definition of success for professional investors?
The difference in returns between short-term and long-term Treasury securities is called the "bond time premium"
To estimate the future risk of a stock investment, analysts will calculate the _________ and assume it is a reasonable estimate of future risk.
If the expected return on Treasury bills for 2015 is 0.25 percent and the market risk premium for the U.S. is 7.50 percent, what is the expected return on the U.S. stock market for 2015?
Diversification of a stock portfolio can be achieved by __________.
The appropriate cost of capital to be used to discount average risk projects is _________.
A major limitation of using standard deviation of historical stock returns to predict future investment risk is ________.
Select all of the terms below that are related to the riskiness of an asset investment.
Diversification works best when portfolio stock returns are ______ correlated.
The appropriate cost of capital to be used to discount risk-free projects is ________.
Once you have added about ______ or more diversified stocks to your portfolio, you have removed about as much specific risk as you possibly can.
Which of the following stock indexes tracks the performance of a portfolio consisting of 1 share each of 30 "blue chip" stocks?
Individual projects which seem risky to a firm do not contribute much risk to the portfolio of a diversified investor.
The standard deviation of returns is a useful measure of risk for individual assets in isolation, but is a misleading risk measure for assets in a portfolio due to the ________ effect caused by ________.
Which of the following industries have less-than-average exposure to macro and market risk?
For a well-diversified investor, the only type of risk that matters is _______.
The most important measure of risk in a well-diversified portfolio is
Investors holding well-diversified portoflios are most concerned with
Which of the following is the relevant risk to investors of a single stock held in a diversified portfolio?
The impact of macroeconomic news is tracked by the rate of return on a _____________ of all securities.
The fitted line's _______ measures a stock's market risk.
If the market portfolio return decreases by 2%, then each firm's stock return will ________ by about _______ percent.
A firm can have high total risk but a low beta if its _______ is high.
In principle the market portfolio should contain all assets in the world economy. In practice, financial analysts use _______ as a proxy for the market portfolio.
If you invest 50 percent of your funds in a stock with beta=1.5, 30 percent in a stock with beta=0.9 and 20 percent in a stock with beta=0.3, your portfolio beta will be _______.
Plot a firm's stock returns versus the market portfolio returns using data for a fixed period of time. The slope of the straight line fitted to those points is called:
If the market portfolio return increases by 1%, then each firm's stock return will ________ by about ________ percent.
The measure of market risk for a security is its _________.
The average of the betas of the individual securities in a portfolio, weighted by the investment in each security, is called the:
The total risk of a well-diversified portfolio of stocks can be calculated as the product of the ________ times the _________.
A beta of 0 indicates that a security is _________ by what happens in the market.
The total risk of a security investment consists of _______ plus _______.
The total risk of a diversified portfolio of stocks is determined by the _________, since all ________ has been diversified away.
The CAPM assumes that the stock market is composed of _______ investors.
The CAPM assumes that the stock market is composed of _______ investors.
If you construct an investment portfolio by investing 75% of your funds in the market portfolio (r = 14%) and 25% of your funds in Treasury bills (r = 3%), what is the expected return of your portfolio according to the CAPM?
What is the CAPM formula?
The CAPM predicts that the difference in return between stock A and stock B should be due only to the difference in the _______ of the two stocks.
XYZ Industries is considering the following list of projects. For each, the project cost of capital and expected return are given. Which of these projects should the firm accept?
The security market line describes the expected returns and risks from dividing a portfolio between _________ and _________.
According to the CAPM, what is the expected return on a stock if its beta is equal to zero?
Firms may use a ____________ to discount the cash flows of their average risk projects.
The minimum acceptable expected rate of return for a project is called the ________________.
Projects with high fixed costs will tend to have earnings that vary _______ with any change in revenues
A sensible way for a manager to account for overoptimistic cash-flow forecasts is to adjust the discount rate.
The opportunity cost of capital for investment in the firm as a whole is called the:
The risk of undertaking a project can be described by its __________.
Projects with high fixed costs will tend to have _______ betas than other projects.
If cash-forecasts are prepared properly then which of the following are true?
Suppose the risk-free rate is 5%, the market rate of return is 10%, and beta is 2. Find the expected rate of return using the CAPM.
XYZ Industries is considering the following list of projects. For each, the project cost of capital and expected return are given. Which of these projects should the firm accept?
If an investor purchases a security today for $9.00 and sells it tomorrow for $7.50, his capital gain will be _________.
- An investor purchases a share of stock today for $27.50 and holds it for a year. During the year the stock pays $4.50 in dividends. The investor sells the stock at the end of the year for $29.25. What is her percentage return? (Record your answer as a percent rounded to one decimal place.)
- Beating the performance of which of the indexes below is usually the definition of success for professional investors?
- U.S. Treasury bills are nearly a risk-free investment because:
- Rank the following in order of risk, from least risky to most risky.
- If an investor purchases a security for $12.30, then sells it at a later date for $14.10, her capital gain would be ____________.
- The extra annual return from investing in long versus short-term Treasury securities is known as:
- Which of the following expressions correctly calculates an investor's percentage return on a share of stock?
The Standard & Poor's Composite Index is also referred to as the "S&P 500" index.
- Which of the following statements is true regarding the risks undertaken by investors in U.S. Treasury bills?
- Which of the following statements are true regarding the risks undertaken by investors in common stock?
The difference in returns between short-term and long-term Treasury securities is called the "bond time premium"
- If the expected return on Treasury bills for 2015 is 0.25 percent and the market risk premium for the U.S. is 7.50 percent, what is the expected return on the U.S. stock market for 2015?
- The appropriate cost of capital to be used to discount average risk projects is _________.
- Which of the following stock indexes includes the stocks of 500 major companies in proportion to the number of their shares that have been issued to investors?
- U.S. Treasury bills are nearly a risk-free investment because:
- The expected return on the stock market can be expressed as the sum of the _________ and a __________.
- The square root of variance is called standard ______
- The appropriate cost of capital to be used to discount risk-free projects is ________.
- To estimate the future risk of a stock investment, analysts will calculate the _________ and assume it is a reasonable estimate of future risk.
- Diversification of a stock portfolio can be achieved by __________.
- Variance and standard deviation are measures of __________.
- The standard deviation of returns is a useful measure of risk for individual assets in isolation, but is a misleading risk measure for assets in a portfolio due to the ________ effect caused by ________.
- A major limitation of using standard deviation of historical stock returns to predict future investment risk is ________.
- For a well-diversified investor, the only type of risk that matters is _______.
- Individual projects which seem risky to a firm do not contribute much risk to the portfolio of a diversified investor.
- Diversification works best when portfolio stock returns are ______ correlated.
- Select all of the terms below that are related to the riskiness of an asset investment.
- Investors holding well-diversified portoflios are most concerned with
- Once you have added about ______ or more diversified stocks to your portfolio, you have removed about as much specific risk as you possibly can.
- The principal of ______ demonstrates that a single stock that appears very risky may not contribute much to the overall risk of a well-diversified portfolio.
- Which of the following industries have less-than-average exposure to macro and market risk?
- Which of the following is the relevant risk to investors of a single stock held in a diversified portfolio?
- In principle the market portfolio should contain all assets in the world economy. In practice, financial analysts use _______ as a proxy for the market portfolio.
- Rank the following stocks from lowest risk to highest risk.
- The fitted line's _______ measures a stock's market risk.
- If the market portfolio return decreases by 2%, then each firm's stock return will ________ by about _______ percent.
- The total risk of a security investment consists of _______ plus _______.
- The impact of macroeconomic news is tracked by the rate of return on a _____________ of all securities.
- The average of the betas of the individual securities in a portfolio, weighted by the investment in each security, is called the:
- The average beta for all stocks (the beta of the market portfolio) is ____.
- Plot a firm's stock returns versus the market portfolio returns using data for a fixed period of time. The slope of the straight line fitted to those points is called:
- If the market portfolio return increases by 1%, then each firm's stock return will ________ by about ________ percent.
- The measure of total risk for a security is its ________.
- If you invest 50 percent of your funds in a stock with beta=1.5, 30 percent in a stock with beta=0.9 and 20 percent in a stock with beta=0.3, your portfolio beta will be _______.
- A firm can have high total risk but a low beta if its _______ is high.
- The total risk of a well-diversified portfolio of stocks can be calculated as the product of the ________ times the _________.
- U.S. Treasury securities are considered to be a risk-free investment that is fixed and not affected by movements in the market. Such a security would naturally have a beta of ______,
- The CAPM assumes that the stock market is composed of _______ investors.
- If you construct an investment portfolio by investing 75% of your funds in the market portfolio and 25% of your funds in Treasury bills, what is the beta of your portfolio?
- The total risk of a diversified portfolio of stocks is determined by the _________, since all ________ has been diversified away.
- A beta of 0 indicates that a security is _________ by what happens in the market.
- For well-diversified investors, the only relevant measure of investment risk is their __________.
- Suppose the risk-free rate is 5%, the market rate of return is 10%, and beta is 2. Find the expected rate of return using the CAPM.
- If you construct an investment portfolio by investing 75% of your funds in the market portfolio (r = 14%) and 25% of your funds in Treasury bills (r = 3%), what is the expected return of your portfolio according to the CAPM?
- According to the CAPM, what is the expected return on a stock if its beta is equal to zero?
- The CAPM predicts that the difference in return between stock A and stock B should be due only to the difference in the _______ of the two stocks.
- The risk of undertaking a project can be described by its __________.
- Firms may use a ____________ to discount the cash flows of their average risk projects.
- Projects with high fixed costs will tend to have _______ betas than other projects.
- Value stocks here are defined as those with __________ ratios of book value to market value; growth stocks are those with __________ ratios of book to market value.
- The security market line describes the expected returns and risks from dividing a portfolio between _________ and _________.
- If cash-forecasts are prepared properly then which of the following are true?
- The minimum acceptable expected rate of return for a project is called the ________________.
- The opportunity cost of capital for investment in the firm as a whole is called the:
- Projects with high fixed costs will tend to have earnings that vary _______ with any change in revenues
- A sensible way for a manager to account for overoptimistic cash-flow forecasts is to adjust the discount rate.
XYZ Industries is considering the following list of projects. For each, the project cost of capital and expected return are given. Which of these projects should the firm accept?