This quiz works best with JavaScript enabled. Home > Economics > Finance > Risk > Risk And Return – Quiz 1 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Risk And Return Quiz 1 (30 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. Plunging oil prices is an example of which of the following types of investment risk? A) Company risk. B) Political risk. C) Inflation risk. D) Industry risk. Show Answer Correct Answer: D) Industry risk. 2. A stock has an expected return of 13.24 percent, the risk-free rate is 4.4 percent, and the market risk premium is 8.98 percent. What is the stock's beta? A) 1.03. B) .98. C) 1.09. D) 0.87. Show Answer Correct Answer: B) .98. 3. Portfolio of two stocks with the following criteria:Share A, Beta 1.7, weight 37%Share B, Beta 1.2, weight 63%Beta portfolio is ..... A) 1, 81. B) 0, 71. C) 1, 39. D) 0, 45. Show Answer Correct Answer: C) 1, 39. 4. Tighter the probability distributions A) The higher the standard deviation. B) The higher the risk. C) The lesser the risk. D) Data is insufficient to determine the riskiness. Show Answer Correct Answer: C) The lesser the risk. 5. What does Stand alone risk consist of? A) Diversifiable risk. B) Market risk. C) All of the above. D) None of above. Show Answer Correct Answer: C) All of the above. 6. If you created a graph with investment risk on the x-axis and investment return on the y-axis and plotted points for two different investments, a line going through the points would probably be: A) Positively sloped. B) Negatively sloped. C) Have a slope of zero. D) None of above. Show Answer Correct Answer: A) Positively sloped. 7. Starting an investment portfolio at a young age means: A) There is greater potential for high yield over a longer period. B) Knowing your investment is always safe. C) You should choose stock with low risks. D) You can spend freely, without concern for your financial future. Show Answer Correct Answer: A) There is greater potential for high yield over a longer period. 8. ..... function of security analysis is concerned with collecting, analysing, interpreting and presenting important facts related to a security A) Selective function. B) Descriptive function. C) Critical function. D) None of the above. Show Answer Correct Answer: B) Descriptive function. 9. Portfolio of two stocks with the following criteria:Share A, Beta 0.15, weight 50%Share B, Beta 1.93, weight 50%Beta portfolio is ..... A) 1.04. B) 0.85. C) 1.57. D) 0.91. Show Answer Correct Answer: A) 1.04. 10. The uncertainty caused by the variability of a company's cash flows is called: A) Agency cost. B) Financial leverage. C) Business risk. D) Financial risk. Show Answer Correct Answer: C) Business risk. 11. Probability = 15%; Return =-5%Probability = 20%; Return = 10%Probability = 30%; Return = 15%Probability = 35%; Return = 25%What is the expected rate of return on the investment? A) 16%. B) 15.4%. C) 14.5%. D) 15.5%. Show Answer Correct Answer: C) 14.5%. 12. Concept that nothing is free A) Importunity Cost. B) Opportunity Cost. C) Investment Chance. D) Risk. Show Answer Correct Answer: B) Opportunity Cost. 13. Companies with less than $ 2 Billion Market Capital A) Baby Companies. B) Small Time Companies. C) Small-cap companies. D) None of above. Show Answer Correct Answer: C) Small-cap companies. 14. The largest component of returns for a 7-year zero-coupon bond yielding 8% and held to maturity is: A) Capital gains. B) Interest income. C) Reinvestment income. D) None of above. Show Answer Correct Answer: B) Interest income. 15. Which of the following three bonds (similar except for yield and maturity) has the least Macaulay duration? A bond with: A) 5% yield and 10-year maturity. B) 5% yield and 20-year maturity. C) 6% yield and 1 0-year maturity. D) None of above. Show Answer Correct Answer: C) 6% yield and 1 0-year maturity. 16. Which of these are included in the calculation of expected return? A) Correlation. B) Weightage. C) Covariance. D) Volatility. Show Answer Correct Answer: B) Weightage. 17. Certificate of Deposit A) Non insured deposit. B) A time deposit with a fixed interest rate. C) Achievement of having 2 bank accounts. D) A time deposit of money that varies in interest. Show Answer Correct Answer: B) A time deposit with a fixed interest rate. 18. Which of the following scenarios shows a perfectly negative correlation on stocks A) ABC stocks moves completely opposite of XYZ. B) ABC moves perfectly along with XYZ. C) ABC stocks moves slightly on the same direction as XYZ. D) XYZ moves completely the same as ABC. Show Answer Correct Answer: A) ABC stocks moves completely opposite of XYZ. 19. A minimum-variance portfolio formed by investing in only stocks must be ..... A) Risker than risk-free asset. B) Less risky than risk-free asset. C) As risky as the risk-free asset. D) None of above. Show Answer Correct Answer: A) Risker than risk-free asset. 20. In a portfolio, how does one choose between 2 stocks to reduce risk without sacrificing return? A) Low Correlation, Low Return. B) High Correlation, High Return. C) Low Correlation, High Return. D) High Correlation, Low Return. Show Answer Correct Answer: C) Low Correlation, High Return. 21. Companies between $ 2 Billion and $ 10 Billion market capital A) Mid-cap stocks. B) Mediocre Markets. C) Daughter companies. D) Medium Market Companies. Show Answer Correct Answer: A) Mid-cap stocks. 22. Before you begin investing, you need to ..... A) Create your investment plan. B) Understand your tolerance to risk. C) Share your investments ideas with others. D) Research all companies you are interested in. Show Answer Correct Answer: B) Understand your tolerance to risk. 23. Investors can eliminate what type of risk by diversifying? A) Systematic risk. B) Total risk. C) Unsystematic risk. D) Beta risk. Show Answer Correct Answer: C) Unsystematic risk. 24. Exposure to loss or damage A) Loss of Return Percentage. B) Risk Per Investment Percentage. C) Danger. D) Risk. Show Answer Correct Answer: D) Risk. 25. ..... refers to the portion of an asset's risk that attributes to firm's specific random events, for example strikes and robberies, that can be eliminated by diversification. A) General risk. B) Non-diversifiable risk. C) Unique risk. D) Market risk. Show Answer Correct Answer: C) Unique risk. 26. Fremont Enterprises has an expected return of 16% and Laurelhurst News has an expected return of 19%. If you put 48% of your portfolio in Laurelhurst and 52% in Fremont, what is the expected return of your portfolio? A) 17.44%. B) 17.56%. C) 17.32%. D) None of above. Show Answer Correct Answer: A) 17.44%. 27. The critical years for making decisions about education and employment are ..... A) 18-25 years old. B) Earlier the better. C) 6-25 years old. D) 17-20 years old. Show Answer Correct Answer: A) 18-25 years old. 28. If the value of the expected return is higher than the required returns, then the stock: A) Undervalued. B) Fairly valued. C) Overvalued. D) None of above. Show Answer Correct Answer: A) Undervalued. 29. Known:Return from risk free asset is 3%Return from market is 15%Beta portfolio is 0.75Required return from portfolio is ..... A) 8%. B) 12%. C) 10%. D) 14%. Show Answer Correct Answer: B) 12%. 30. Which of the following statements about duration is correct? A bond's: A) Effective duration is a measure of yield duration. B) Modified duration is a measure of curve duration. C) Modified duration cannot be larger than its Macaulay duration. D) None of above. Show Answer Correct Answer: C) Modified duration cannot be larger than its Macaulay duration. 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