1. For each 1% change in the market portfolio's excess return, the investment's excess return is expected to change by ________ percent due to risks that it has in common with the market.

a.

cannot say for sure

b.

beta

c.

alpha

d.

zero

2.

Which of the following statements is FALSE?

a.

Expected return should rise proportionately with volatility.

b.

Investors would not choose to hold a portfolio that is more volatile unless they expected to earn a higher return.

c.

The largest stocks are typically more volatile than a portfolio of large stocks.

d.

Smaller stocks have lower volatility than larger stocks.

3.

Diversification reduces the risk of a portfolio because ________ and some of the risks are averaged out of the portfolio.

a.

stocks are always effected by the market

b.

stocks are unpredictable

c.

stocks do not move identically

d.

stocks have common risks

4.

Which of the following statements is FALSE?

a.

A security with a negative beta has a negative correlation with the market, which means that this security tends to perform well when the rest of the market is doing poorly.

b.

The risk premium of a security is equal to the market risk premium (the amount by which the market's expected return exceeds the risk-free rate) divided by the amount of market risk present in the security's returns measured by its beta with the market.

c.

There is a linear relationship between a stock's beta and its expected return.

d.

We refer to the beta of a security with the market portfolio simply as the securities beta.

5.

1. Ford Motor Company had realized returns of 10%, 20%, 20%, and 10% over four quarters. What is the quarterly standard deviation of returns for Ford calculated from this sample?

   	a.	5.11%
   	b.	5.99%
   	c.	5.00%
   	d.	5.77%