6. Which of the following statements is correct? a. The returns on two stocks are negatively correlated. One has a beta of 1.2 while the other has a beta of -0.6. The returns on the stock with the negative beta must have been negatively correlated with returns on many other stocks during the time period measured. b. You are convinced that the stock market is about to rise sharply. Thus you should sell your high- beta stocks and buy low-beta stocks. c. You believe that investors are likely to become more risk averse. Thus you should rebalance your portfolio to include more high-beta stocks. d. A corporation operates as a collection agency by collecting past-due accounts. Its revenues, profits, and stock price tend to rise during recessions. This suggests that its beta should be quite high, such as +2.0, because it performs well when the economy is weak. 7. Which of the following statements is correct? a. The higher the correlation between the stocks in a portfolio, the lower the risk inherent in the portfolio b. It is impossible for the market risk of a single stock to be less than that of a portfolio that includes the stock c. An investor can eliminate virtually all diversifiable risk by holding a large, well-diversified portfolio of stocks. d. An investor can eliminate virtually all market risk by holding a large, well-diversified portfolio of stocks. 8. An option that gives the holder the right to sell a stock at a specified price at some future time is a: a. put option. b. naked option. C. covered option. d. call option 9. Which of the following statements is correct?: A bond is likely to be called if a. its market price is equal to its par value. b. it sells at a discount below its par value. c. it sells at a premium above its par value. d. its coupon rate is lower than the yield to maturity. 10. Free cash flow is equal to: a. Operating current assets minus operating current liabilities. b. Earnings before interest and taxes + depreciation. c. Net operating working capital plus operating long-term assets. d. Net operating profit after taxes minus total net operating capital. 11. If the expected return on a stock exceeds its required return (per the Capital Asset Pricing Model) then the a. Stock should be sold. b. Stock should be purchased. c. Stock is in equilibrium. d. Price of the stock will remain constant. 12. The writer of a call option a. Bought the right the buy the stock at a specified price. b. Bought the right to sell the stock at a specified price. c. Sold the right to sell shares at a specified price to another investor. d. Sold the right to buy shares at a specified price to another investor
