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20 Cards in this Set
- Front
- Back
Which one of the following returns is the average return you expect to earn in the future on a risky asset?
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Expected return
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What is the extra compensation paid to an investor who invests in a risky asset rather than in a risk-free asset called?
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risk premium
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A group of stocks and bonds held by an investor is called which one of the following?
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portfolio
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The value of an individual security divided by the portfolio value is referred to as the portfolio:
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weight
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Diversification is investing in a variety of assets with which one of the following as the primary goal?
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reducing some risks
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Correlation is the:
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extent to which the returns on two assets move together.
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The division of a portfolio's dollars among various types of assets is referred to as:
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asset allocation
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Which one of the following is a collection of possible risk-return combinations available from portfolios consisting of individual assets?
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investment opportunity set
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An efficient portfolio is a portfolio that does which one of the following?
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offers the highest return for a given level of risk
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Which one of the following is the set of portfolios that provides the maximum return for a given standard deviation?
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Markowitz efficient frontier
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Which of the following are affected by the probability of a state of the economy occurring?
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I. expected return of an individual security
II. expected return of a portfolio III. standard deviation of an individual security IV. standard deviation of a portfolio |
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Which one of the following statements must be true?
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Considering the possible states of the economy emphasizes the fact that multiple outcomes can be realized from an investment.
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You own a portfolio of 5 stocks and have 3 expected states of the economy. You have twice as much invested in Stock A as you do in Stock E. How will the weights be determined when you compute the rate of return for each economic state?
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The weights will be based on the amount invested in each stock as a percentage of the total amount invested.
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Terry has a portfolio comprised of two individual securities. Which one of the following computations that he might do is NOT a weighted average?
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correlation between the securities
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You own a stock which is expected to return 14 percent in a booming economy and 9 percent in a normal economy. If the probability of a booming economy decreases, your expected return will:
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decrease
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You own three securities. Security A has an expected return of 11 percent as compared to 14 percent for Security B and 9 percent for Security C. The expected inflation rate is 4 percent and the nominal risk-free rate is 5 percent. Which one of the following statements is correct?
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Security B has a risk premium that is 50 percent greater than Security A's risk premium.
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Which of the following will increase the expected risk premium for a security, all else constant?
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I. an increase in the security's expected return
IV. a decrease in the risk-free rate |
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If the future return on a security is known with absolute certainty, then the risk premium on that security should be equal to:
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zero
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You own a stock that will produce varying rates of return based upon the state of the economy. Which one of the following will measure the risk associated with owning that stock?
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variance of the returns given the multiple states of the economy
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Which of the following affect the expected rate of return for a portfolio?
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I. weight of each security held in the portfolio
II. the probability of various economic states occurring IV. the expected rate of return of each security given each economic state |