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University
The Meaning and Measurement of Risk and Return
15 questions
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- 1. Multiple Choice
Below are all types of return except:
Actual return
Expected return
Possible return
Required return
- 2. Multiple Choice
Which of the following is an example of systematic risk?
BHP Billiton posts lower than expected earnings.
Woolworths announces record earnings.
The government raises interest rates unexpectedly.
Coca-Cola announces higher than expected earnings
- 3. Multiple Choice
Investors can eliminate what type of risk by diversifying?
Systematic risk
Unsystematic risk
Beta risk
Total risk
- 4. Multiple ChoiceWhich of the following statements about risk is TRUE?Risk is about how uncertain your returns could be.Risk is about how much money you can lose.A risky asset is more likely to deliver higher return than a less risky asset.If an asset's risk increases, its price will also increase.
- 5. Multiple Choice
From the probability distribution provided, the expected return of the asset is closest to:
9%
6.7%
10%
20%
- 6. Multiple Choice
Consider the following 4 assets. If you have to select only one, which one would you pick if you are risk-averse?
D
A
B
C
- 7. Multiple Choice
If employees of a company go on strike, this is an example of which types of investment risk?
company risk
industry risk
political risk
inflation risk
- 8. Multiple Choice
Plunging oil prices is an example of which of the following types of investment risk?
company risk
industry risk
political risk
inflation risk
- 9. Multiple Choice
Ahmad is considering investing in stocks. Which is the less risky investment?
Stock A: SD = 10%; E(R) = 10%
Stock B: SD = 6%; E(R) = 10%
Stock C: SD = 8%; E(R) = 12%
Stock D: SD = 20%; E(R) = 24%
- 10. Multiple Choice
Investment A has an expected return of 15% per year, while Investment B has an expected return of 12% per year. A rational investor will choose
Investment A because of the higher expected return.
Investment B because a lower return means lower risk.
Investment A if A and B are of equal risk.
Investment A only if the standard deviation of returns for A is higher than the standard deviation of returns for B.
- 11. Multiple Choice
Of the following different types of securities, which is typically considered most risky?
long-term corporate bonds
long-term government bonds
common stocks of large companies
common stocks of small companies
- 12. Multiple Choice
You are considering investing in Ford Motor Company. Which of the following are examples of diversifiable risk?
I. Risk resulting from possibility of a stock market crash.
II. Risk resulting from uncertainty regarding a possible strike against Ford.
III. Risk resulting from an expensive recall of a Ford product.
IV. Risk resulting from interest rates decreasing.
I only
I and IV
I, II, III, IV
II, III
- 13. Multiple Choice
The capital asset pricing model
provides a risk-return trade-off in which risk is measured in terms of the market volatility.
provides a risk-return trade-off in which risk is measured in terms of beta.
measures risk as the coefficient of variation between security and market rates of return.
depicts the total risk of a security.
- 14. Multiple Choice
If the beta for stock A equals zero, then
stock A's required return is equal to the required return on the market portfolio.
stock A's required return is equal to the risk-free rate of return.
stock A has a guaranteed return.
stock A's required return is greater than the required return on the market portfolio.
- 15. Multiple Choice
Wendy purchased 800 shares of Robotics stock at $3 per share on 1/1/09. Wendy sold the shares on 12/31/09 for $3.45. Robotics stock has a beta of 1.3, the risk-free rate of return is 3%, and the market risk premium is 8%. The required return on Robotics stock is
13.4%.
16.5%.
17.6%.
21.1%.
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