This quiz works best with JavaScript enabled. Home > Economics > Finance > Risk > Risk And Return – Quiz 3 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Risk And Return Quiz 3 (30 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. The appropriate cost of capital for a project depends on: A) The type of assets (current or fixed) used in the project. B) The interest rate on the company's outstanding long-term bonds. C) The type of security issued to finance the project. D) The risk associated with the project. Show Answer Correct Answer: D) The risk associated with the project. 2. Risk is used interchangeably with ..... to explain the variability of returns. A) Expectation. B) Risk averse. C) Uncertainty. D) Diversification. Show Answer Correct Answer: C) Uncertainty. 3. Which is the riskiest investment? A) Investment A:ER = 22%; SD = 10%. B) Investment C:ER = 21%; SD = 14%. C) Investment B:ER = 24%; SD = 12%. D) Investment D:ER = 20%; SD = 11%. Show Answer Correct Answer: B) Investment C:ER = 21%; SD = 14%. 4. Investors should be agreeing to invest in the Riskier investments merely A) If return is short. B) If they are true speculators. C) If expected return is adequate for risk level. D) If there are no safe alternatives except for holding cash. Show Answer Correct Answer: C) If expected return is adequate for risk level. 5. The expected risk premium on a stock is equal to the expected return on the stock minus the: A) Risk-free rate. B) Inflation rate. C) Standard deviation. D) Expected market rate of return. Show Answer Correct Answer: A) Risk-free rate. 6. Total risk is measured by ..... and systematic risk is measured by ..... A) Beta; standard deviation. B) Alpha; beta. C) Standard deviation; beta. D) Standard deviation; variance. Show Answer Correct Answer: C) Standard deviation; beta. 7. A portfolio has three stocks-240 shares of Yahoo (YHOO), 150 Shares of General Motors (GM), and 40 shares of Standard and Poor's Index Fund (SPY). If portfolio weight of YHOO is 0.426 and portfolio weight of GM is 0.266.Calculate the portfolio weight of SPY. A) 0.308. B) 0.318. C) 0.0308. D) None of above. Show Answer Correct Answer: A) 0.308. 8. To calculate the required rate of returns from a stock or portfolio, the equation is used: A) Security Market Line. B) Regression. C) Sharpe Ratio. D) None of above. Show Answer Correct Answer: A) Security Market Line. 9. Suzie owns five different bonds and twelve different stocks. Which one of the following terms most applies to her investments? A) Risk-free. B) Portfolio. C) Index. D) Collection. Show Answer Correct Answer: B) Portfolio. 10. If you need money within five years you should ..... A) Borrow. B) Get a job. C) Invest. D) Save. Show Answer Correct Answer: D) Save. 11. A portfolio consists of $ 15, 400 in Stock M and $ 23, 900 invested in Stock N. The expected return on these stocks is 9.20 percent and 12.60 percent, respectively. What is the expected return on the portfolio? A) 11.89. B) 11.27. C) 10.25. D) 11.55. Show Answer Correct Answer: B) 11.27. 12. You have a portfolio that is equally invested in Stock F with a beta of 1.07, Stock G with a beta of 1.44, and the risk-free asset. What is the beta of your portfolio? A) 1.67. B) 0.96. C) .84. D) 1.34. Show Answer Correct Answer: C) .84. 13. The expected return on an investment is ..... A) Equal to required return. B) Calculated by taking the mean of the distribution of possible returns. C) Less than required return. D) Equivalent to the actual return. Show Answer Correct Answer: B) Calculated by taking the mean of the distribution of possible returns. 14. What happens when Beta < 1.0 A) The security is riskier than the average stock. B) The security is as risky as the average stock. C) The security is less risky as the average stock. D) None of above. Show Answer Correct Answer: C) The security is less risky as the average stock. 15. What is required returns? A) Returns you actually get. B) Returns an investor requires given the riskiness of the stock and returns available on other investments. C) Returns an investor who buys the stock expects to get in the future. D) None of above. Show Answer Correct Answer: B) Returns an investor requires given the riskiness of the stock and returns available on other investments. 16. Slope of the security market line is A) Security market line. B) Applications of CAPM. C) Limitations of CAPM. D) Reward-to-risk ratio. Show Answer Correct Answer: D) Reward-to-risk ratio. 17. The wider the dispersion of returns on a stock, the: A) Lower the expected rate of return. B) Higher the standard deviation. C) Lower the real rate of return. D) Lower the variance. Show Answer Correct Answer: B) Higher the standard deviation. 18. Which of the following is an example of systematic risk? A) Woolworths announces record earnings. B) BHP Billiton posts lower than expected earnings. C) Coca-Cola announces higher than expected earnings. D) The government raises interest rates unexpectedly. Show Answer Correct Answer: D) The government raises interest rates unexpectedly. 19. The risk premium value of a portfolio describes ..... A) Compensation that investors want from the risks they face. B) The asset is risky. C) Asset liquidity. D) These assets are of interest to many investors. Show Answer Correct Answer: A) Compensation that investors want from the risks they face. 20. Think carefully about this one. Some investors will accept high risk investments and some investors prefer low risk investments. What term best describes that situation? A) Rate of return. B) Risk-return tradeoff. C) Risk aversion. D) Risk Tolerance. Show Answer Correct Answer: D) Risk Tolerance. 21. The risk-free security has a beta equal to ....., while the market portfolio's beta is equal to ..... A) One; more than one. B) Zero; one. C) One; less than one. D) Less than zero; more than zero. Show Answer Correct Answer: B) Zero; one. 22. Which one of the following is an example of unsystematic risk? A) National decrease in consumer spending on entertainment. B) An increased feeling of global prosperity. C) Decrease in the national level of inflation. D) Adoption of a national sales tax. Show Answer Correct Answer: A) National decrease in consumer spending on entertainment. 23. If employees of a company go on strike, this is an example of which types of investment risk? A) Industry risk. B) Company risk. C) Inflation risk. D) Political risk. Show Answer Correct Answer: B) Company risk. 24. Income or profit from a investment A) Profit. B) Return. C) Returnage rate. D) Cash back. Show Answer Correct Answer: B) Return. 25. Below are all types of return except: A) Actual return. B) Possible return. C) Expected return. D) Required return. Show Answer Correct Answer: B) Possible return. 26. Investing in a global stock fund is a good idea to: A) Focus all risk on the U.S. economy. B) Keep your portfolio dependent solely on the U.S. dollar. C) Diversify into municipal and corporate bonds. D) Diversify holdings to spread risk outside the U.S. economy. Show Answer Correct Answer: D) Diversify holdings to spread risk outside the U.S. economy. 27. The value that describes the stock risk if a number of shares are held as a diversified portfolio is: A) Coefficient correlation. B) Coefficient of variation. C) Beta. D) Standard deviation. Show Answer Correct Answer: C) Beta. 28. The Dow Jones Industrial Average is a collection of: A) Thirty U.S. stocks. B) Thirty municipal bonds. C) Thirty globally diverse stocks. D) None of above. Show Answer Correct Answer: A) Thirty U.S. stocks. 29. Money Market Accounts A) A checking account. B) A depos account. C) A deposit account. D) A account that increases the interest rate by a fixed amount ever 2 yrs. Show Answer Correct Answer: C) A deposit account. 30. A stock has a beta of 1.17 and an expected return of 11.21 percent. If the risk-free rate is 3.2 percent, what is the stock's reward-to-risk ratio? A) 8.21%. B) 6.85%. C) 6.32%. D) 9.58%. Show Answer Correct Answer: B) 6.85%. ← PreviousNext →Related QuizzesFinance QuizzesEconomics QuizzesRisk And Return Quiz 1Risk And Return Quiz 2Risk And Return Quiz 4Risk And Return Quiz 5 🏠 Back to Homepage 📘 Download PDF Books 📕 Premium PDF Books