1. According to the risk return tradeoff graph

a) The risk free rate goes up with risk of the investment

b) The risk premium goes up with the risk of the investment

c) The total required return goes up with the risk of the investment

d) Both B and C are true answers

2. If you can invest in stock A or Stock B and both have the same expected return but stock A has more volatility than Stock B.

a) You would be indifferent because both have the same expected return

b) A rational investor would choose stock B because the risk was lower

c) A rational investor would choose Stock A because the risk is lower.

d) A risk averse investor would choose Stock A.

3. If you are told your investment had a 200 basis point increase

a) The price went up 0.200 percent

b) The price went up 2.0 percent

c) The price went up 20%

d) The standard deviation went up 0.200 percent

4. If you have a 10% coupon bond and yields rise, what will happen to the price of that bond?

a) Drop

b) Stay the same

c) Increase

d) It depends on the riskiness of that bond

5. Systematic risk

a) Is the risk eliminated through diversification

b) Represents the risk affecting a specific company

c) Cannot be eliminated through diversification

d) Is another name for risk unique to an individual asset

6. The fact that common stockholders are residual claimants means

a) The stockholders receive their dividends before any other residuals are paid

b) The stockholders are paid any past due dividends before other claims are paid

c) The stockholders are paid before the bondholders but after any taxes are paid

d) The stockholders have a claim against the revenue that remains after everyone else is paid