This quiz works best with JavaScript enabled. Home > Finance > Risk > Risk And Return – Quiz 3 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Risk And Return Quiz 3 (20 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. This shows how much excess return is generate per unit of risk an investor takes A) Jensen's Alpha. B) Coefficient of Correlation. C) Sharpe Ratio. D) Median. Show Answer Correct Answer: C) Sharpe Ratio. 2. If two stocks are related to each other then the value of the correlation coefficient of the two stocks is A) 2. B) 1. C) 0. D) -1. Show Answer Correct Answer: C) 0. 3. Project A:SD = 6%; E(R) = 10%Project B:SD = 10%; E(R) = 10%Project C:SD = 20%; E(R) = 30%Project D:SD = 8%; E(R) = 14%Which project would a risk averse investor choose? A) Project A. B) Project B. C) Project C. D) Project D. Show Answer Correct Answer: D) Project D. 4. If the beta of the security is average A) The Required Rate of Return is equal to market return. B) The Required Rate of Return is negative. C) The market return will decline. D) Market risk premium will be negative. Show Answer Correct Answer: A) The Required Rate of Return is equal to market return. 5. Two stocks with the following criteria:Share A returns four years 10%;-30%;10%;15%Share B returns four years -10%;5.5%;15%;12.5% The respective weights during the year are 55% and 45%. Determine the correlation coefficient of the two stocks! A) 0.1. B) 0.3. C) 0.06. D) 0.04. Show Answer Correct Answer: C) 0.06. 6. Wide variety of investments A) Variety. B) Investment Spread. C) Diversification. D) None of above. Show Answer Correct Answer: C) Diversification. 7. Of the following different types of securities, which is typically considered most risky? A) Long-term corporate bonds. B) Long-term government bonds. C) Common stocks of large companies. D) Common stocks of small companies. Show Answer Correct Answer: D) Common stocks of small companies. 8. Which of the following risks can an investor reduce or eliminate through diversification or by adding more securities of other companies to the investment portfolio? A) Market risk. B) Political risk. C) Interest rate risk. D) Financial risk. Show Answer Correct Answer: D) Financial risk. 9. ..... is unplanned, inscientific employment of fund in a game or chance, without knowledge of nature of risk. A) SPECULATION. B) GAMBLING. C) INVESTMENT. D) HEDGING. Show Answer Correct Answer: B) GAMBLING. 10. If you have the opportunity to compile a portfolio consisting of two stocks, then the correlation coefficient of the two stocks you choose is A) 0.7. B) 0.8. C) -0.5. D) -1. Show Answer Correct Answer: D) -1. 11. Average return that an investment is expected to produce over time A) Expected value. B) True value. C) Intrinsic Value. D) Realized return. Show Answer Correct Answer: A) Expected value. 12. The interest rate risk of a fixed-rate bond with an embedded call option is best measured by: A) Effective duration. B) Modified duration. C) Macaulay duration. D) None of above. Show Answer Correct Answer: A) Effective duration. 13. Which is the portfolio return? A) Rawa+rbwb-rcwc. B) Rawa+rbwb. C) Sdawa+rbwb. D) All. Show Answer Correct Answer: B) Rawa+rbwb. 14. Government Securities A) Debt owed by the legislative. B) Debt owed by a specific level of government. C) Debt owed by any level of government. D) The amount of securities a government owns. Show Answer Correct Answer: C) Debt owed by any level of government. 15. ..... risk affects both savings and investing. A) Coronavirus. B) Inflation. C) Personal. D) Unforeseen. Show Answer Correct Answer: B) Inflation. 16. Interest Bearing Checking Account A) Earns interest on the highest daily minimum balance. B) Earns interest based on the avg. daily maximum balance. C) Earns interest on the avg. daily minimum balance. D) Earns interest on the avg. daily maximum. Show Answer Correct Answer: C) Earns interest on the avg. daily minimum balance. 17. Assuming no change in the credit risk of a bond, the presence of an embedded put option: A) Reduces the effective duration of the bond. B) Increases the effective duration of the bond. C) Does not change the effective duration of the bond. D) None of above. Show Answer Correct Answer: A) Reduces the effective duration of the bond. 18. For investors with more time until retirement, the focus should be on ..... A) Savings. B) CDs. C) Putting your money under your mattress. D) Stocks. Show Answer Correct Answer: D) Stocks. 19. Short-term debt securities issued by the Federal Government A) Legislative Bonds. B) Treasury Bills. C) Federal Securities. D) None of above. Show Answer Correct Answer: B) Treasury Bills. 20. Based on coefficient of variation, which investment is less risky? A) Investment A:E(R) = 22%; SD = 10%. B) Investment B:E(R) = 24%; SD = 12%. C) Investment C:E(R) = 21%; SD = 14%. D) Investment D:E(R) = 20%; SD = 11%. Show Answer Correct Answer: A) Investment A:E(R) = 22%; SD = 10%. ← PreviousNext →Related QuizzesFinance QuizzesRisk And Return Quiz 1Risk And Return Quiz 2Risk And Return Quiz 4Risk And Return Quiz 5Risk And Return Quiz 6Risk And Return Quiz 7 🏠 Back to Homepage 📘 Download PDF Books 📕 Premium PDF Books