Soal Chapter 5

Fundamentals of Investing, 13e, Global Edition (Smart)
Chapter 5 Modern Portfolio Concepts
5.1 Learning Goal 1
7) Melissa owns the following portfolio of stocks. What is the return on her portfolio?
A) 8.0%
B) 9.0%
C) 9.8%v
D) 10.9%
8) Marco owns the following portfolio of stocks. What is the expected return on his portfolio?
A) 5.5%v
B) 6.6%
C) 4.7%
D) 8.0%
9) A portfolio consisting of four stocks is expected to produce returns of -9%, 11%, 13% and
17%, respectively, over the next four years. What is the standard deviation of these expected
returns?
A) 10.05%
B) 11.60%v
C) 8.00%
D) 33.42%
11) If there is no relationship between the rates of return of two assets over time, these assets
are
A) positively correlated.
B) negatively correlated.
C) perfectly negatively correlated.
D) uncorrelated.v
12) Combining uncorrelated assets will

A) increase the overall risk level of a portfolio.
B) decrease the overall risk level of a portfolio.v
C) not change the overall risk level of a portfolio.
1
Copyright © 2017 Pearson Education, Ltd.
D) cause the other assets in the portfolio to become positively related.
13) Two assets have a coefficient of correlation of -.4.

A) Combining these assets will increase risk.
B) Combining these assets will have no effect on risk.
C) Combining these assets may either raise or lower risk.
D) Combining these assets will reduce risk.v
14) In the real world, most of the assets available to investors

A) tend to be somewhat positively correlated.v
B) tend to be somewhat negatively correlated.
C) tend to be uncorrelated.
D) tend to be either perfectly positively or perfectly negatively correlated.
16) The returns on the stock of DEF and GHI companies over a 4 year period are shown below:
Year DEF GHI

8% 11%
12% 9%
-5% -9%
6% 13%
From this limited data you should conclude that returns on

A) DEF and GHI are negatively correlated.
B) DEF and GHI are somewhat positively correlated.v
C) DEF and GHI are perfectly positively correlated.
D) DEF and GHI are uncorrelated.
18) Which one of the following types of risk cannot be effectively eliminated through portfolio
diversification?
A) inflation riskv
B) labor problems
C) materials shortages
D) product recalls
20) Systematic risks

A) can be eliminated by investing in a variety of economic sectors.
B) are forces that affect all investment categories.v
C) result from random firm-specific events.
D) are unique to certain types of investment.
21) A measure of systematic risk is

A) standard deviation.
B) correlation coefficient.
C) beta.v
D) variance.
2
22) Beta can be defined as the slope of the line that explains the relationship between
A) the return on a security and the return on the market.v
B) the returns on a security and various points in time.
C) the return on stocks and the returns on bonds.
D) the risk free rate of return versus the market rate of return.
23) In designing a portfolio, relevant risk is

A) total risk.
B) unsystematic risk.
C) event risk.v
D) nondiversifiable risk.
24) Which of the following best describes the relationship between a stock's beta and the
standard deviation of the stock's returns?
A) The higher the standard deviation, the higher the beta.
B) The higher the standard deviation, the lower the beta.
C) The relationship depends on the correlation between the stock's returns and the market's
returns.v
D) Standard deviation and beta are different ways of measuring the same thing.
25) A stock's beta value is a measure of

A) interest rate risk.
B) total risk.
C) systematic risk.v
D) diversifiable risk.
26) The beta of the market is

A) -1.0.
B) 0.0.
C) 1.0.v
D) undefined.
27) When the stock market has bottomed out and is beginning to recover, the best portfolio to
own is the one with a beta of
A) 0.0.
B) +0.5.
C) +1.5.
D) +2.0.v
29) Stock of Gould and Silber Inc. has a beta of -1. If the market declines by 10%, Gould and
Silber would be expected to
A) decline by 10%.
B) rise by 10%.v
C) not respond to market fluctuations.
D) decline by 1%.
3
7) You have gathered the following information concerning a particular investment and
conditions in the market.
According to the Capital Asset Pricing Model, the required return for this investment is
A) 8.85%.
B) 11.48%.
C) 13.98%.v
D) 14.85%.
8) OKAY stock has a beta of 0.8. The market as a whole is expected to decline by 12% thereby
causing OKAY stock to
A) decline by 9.6%.v
B) decline by 12.5%.
C) increase by 9.6%.
D) increase by 12%.
9) The Capital Asset Pricing Model (CAPM) is a mathematical model that depicts the
A) positive relationship between risk and return.v
B) standard deviation between a risk premium and an investment's expected return.
C) exact price that an investor should be willing to pay for any given investment.
D) difference between a risk-free return and the expected rate of inflation.
10) When the Capital Asset Pricing Model is depicted graphically, the result is the
A) standard deviation line.
B) coefficient of variation line.
C) security market line.v
D) alpha-beta line.
11) Which of the following factors comprise the CAPM?
I. dividend yield
II. risk-free rate of return
III. the expected rate of return on the market
IV. risk premium for the firm
A) I and III only

B) II and IV only
C) III and IV only
D) II, III and IV onlyv
4
12) The Franko Company has a beta of 1.90. By what percent will the required rate of return on
the stock of Franko Company increase if the expected market rate of return rises by 3%?
A) 1.91%
B) 2.75%
C) 3.27%
D) 5.70%v
13) What is the expected return on a stock with a beta of 1.09, a market risk premium of 8%,
and a risk-free rate of 4%?
A) 4.36%
B) 8.36%
C) 8.72%
D) 12.72%v
14) According to MSN money, the stock of Orange Corporation has a beta of 1.5, but according
to Yahoo Finance it is 1.75. The expected rate of return on the market is 12% and the risk free
rate is 2%. What is the difference between the required rates of return calculated using each of
these betas?
A) 1.50%
B) 1.75%
C) 2.0%
D) 2.5%v
7) Amanda has the following portfolio of assets.
What is the beta of Amanda's portfolio?

A) 0.62v
B) 0.733
C) 1.13
D) 2.20
8) A portfolio with a beta of 1.26

A) is 126% more risky than the overall market.
B) has less risk than the lowest risk security held within that portfolio.
C) is 26% more risky than a risk-free asset.
D) is considerably more risky than the overall market.v
Learning Goal: Learning Goal 5
5

Soal Chapter 5

Uploaded by

Copyright:

Available Formats

Soal Chapter 5

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Soal Chapter 5

Uploaded by

Copyright:

Available Formats

Fundamentals of Investing, 13e, Global Edition (Smart)

Chapter 5 Modern Portfolio Concepts

5.1 Learning Goal 1

12) Combining uncorrelated assets will

13) Two assets have a coefficient of correlation of -.4.

14) In the real world, most of the assets available to investors

Year DEF GHI

From this limited data you should conclude that returns on

20) Systematic risks

21) A measure of systematic risk is

23) In designing a portfolio, relevant risk is

25) A stock's beta value is a measure of

26) The beta of the market is

11) Which of the following factors comprise the CAPM?

A) I and III only

7) Amanda has the following portfolio of assets.

What is the beta of Amanda's portfolio?

8) A portfolio with a beta of 1.26

You might also like