1. Diversifiable risk can be reduced to zero in a portfolio by holding:

   		a. More than one stock
   		b. More than two stocks
   		c. More than 40 stocks

2. Which of the following is not market risk and therefore can be diversified away?

   		a. An economic recession
   		b. A natural catastrophe such as a hurricane
   		c. A companys decision to open operations in a foreign country

3. A measure of the how much risk a stock contributes to a well-diversified portfolio is:

   		a. The correlation coefficient
   		b. The standard deviation
   		c. Beta

4. In the aggregate, the market has a beta of:

   		a. 10
   		b. 1.0
   		c. .01

5. A stock with a beta larger than 1.0 is:

   		a. More risky than the market
   		b. Less risky than the market
   		c. As risky as the market

6. A stock with a beta less than 1.0 is:

   		a. More risky than the market
   		b. Less risky than the market
   		c. As risky as the market

7. The formula for calculating the required rate of return on a stock when adding it to a well-diversified portfolio of stocks is:

   		a. The risk-free rate + (beta of stock i)(Market Risk Premium)
   		b. The risk-free rate + (standard deviation of stock i)(Market Risk Premium)
   		c. The risk-free rate + (correlation coefficient of stock i and the market)(Market Risk Premium)

8. Techniques and model used in stock valuation seek to determine:

   		a. The market value of the stock
   		b. The intrinsic, or fundamental, value of the stock
   		c. The book value of the stock

9. Discounted cash flow techniques for the valuation of stock are based on:

   		a. The Black-Scholes Model
   		b. Markowitz Portfolio Theory
   		c. Present value analysis

10. The discount rate used in the dividend discount technique is:

    		a. The risk-free rate of return
    		b. The market rate of return
    		c. The investors required rate of return

11. If no growth in the dividend is expected, then the formula for the valuation of the stock is V = D/r. If the dividend is $2.50 and the investors required rate of return if 12% then the intrinsic value of the stock is:

    		a. $20.83
    		b. $19.50
    		c. $21.83

12. In the constant-growth version of the dividend discount technique, the dividend expected next period is divided by the difference between the required rate of return and:

    		a. The expected growth rate in dividends
    		b. The expected risk-free rate of return
    		c. The expected market rate of return

13. If the dividend is expected to grow at a constant rate, then the formula for the valuation of the stock is V in the current period = D in the next period/r g. If the current dividend is $2.50, and the required rate of return is 12% and the growth rate in dividends is 6%, then the value of the stock is:

    		a. $20.83
    		b. $41.67
    		c. $44.17

14. In order to determine if a stock is overvalued or undervalued, the value of a stock derived from techniques (such as the dividend growth technique), is compared to:

    		a. The intrinsic value of the stock
    		b. The market value of the stock
    		c. The book value of the stock

15. Using the earnings multiplier approach for the valuation of stocks, if a stock has a P/E ratio of 1.67 and earnings in the next period are projected to be $3.50, then the value of the stock is:

    		a. $3.50
    		b. $5.22
    		c. $5.85