1. The geometric average of -12%, 5%, 20%, and 25% is closest to:

a) 8.5%

2.

Security	Return	Stan. Dev.	Beta
ORACLE	15%	24%	1.5
YAHOO	11%	32%	1.1

Which asset in the table above has the most total risk? Which asset has the more systematic risk?

a) ORACLE has more total risk; Yahoo has more systematic risk.

b) Yahoo has more total risk; ORACLE has more systematic risk.

c) ORACLE has more total risk, and more systematic risk

d) YAHOO has more total risk, and more systematic risk.

3. In order to graph the capital market line, you require two data points-they are___and___?

c) The expected return on the market; the beta of the stock

4. The beta of the market portfolio is equal to:

a) The risk free rate

b) 0

c) 1.0

d) rm-rf

e) The slop of the CML

5. Which of the following is a source of unsystematic risk:

a) Interest Rate Volatility

b) Currency fluctuation

c) Incompetent Management

d) Uncertainty about changes in tax/regulation

e) All of the above are sources of unsystematic risk

6. Which of the following is a risk-adjusted measure of return:

a) Beta

b) Alpha

c) Sigma

d) Variance

e) Standard deviation

7. In general, lower correlation between asset return leads to:

a) Lower expected return

b) Higher standard deviation

c) Higher expected return

d) Lower portfolio risk

e) Lower portfolio turnover

8. In general, lower correlation between expected return leads to:

a) Higher portfolio risk

b) Higher standard deviations

c) Higher expected returns

d) More potential

e) Diversification

9. If a stock has a high beta, which one if the following factors is most like cause:

a) Consistently high excess returns

b) Steady and increasing cash flows

c) Very sensitive to macroeconomic factors

d) High returns on equity

10. Intel common stock has an annual standard deviation of 24% and a beta of 1.34. The market index has an annual standard deviation of 18%. The expected return on the market index is 9% and the risk free rate is 2% and the market risk premium is 7%. The required return in Intel stock is closest to:

a) 10.85%

b) 11.45%

c) 12.15%

d) 14.15%

e) 14.85%

11. The excess return in the

a) Rate of return that can be earned with certainty

b) Rate of return in excess of the treasury-bill rate

c) Risk adjusted return

e) Index adjusted return

12. The rate of return on___ is known at the beginning of the holding period, while the rate of return on ___ is not known until the end of the holding period:

a) Risky assets; treasury-bills

b) Treasury-bills; risky assets

c) The index; treasury-bills

d) The index; risky assets

13. Statistics estimated from historical date have shown that betas___?

a) Are always close to zero

b) Are constant over time

c) Are always between zero and 1

d) Seem to regress toward 1 over time

15. All else being held constant, the higher a stocks beta,

a) The more unsystematic risk the stock has

b) The higher the correlation is between the stock and the market

c) The more diversification it provides in a portfolio

d) All of the above

16. The Capital Market Line requires___and___:

a) The risk free rate; the beta portfolio

b) The risk free rate; the set of efficient portfolios

c) The expected return on the market; the beta of the stock

d) The risk free rate; the expected return on the market