1. If you assume greater risk in an investment, you will always be compensated for it in terms of higher expected returns.

   • True
   • False

2. ___________ measures how a particular security has historically co-varied with the overall market, usually measured by a broad-based stock index like the S&P 500 or Russell 20000.

   • Revenue
   • Future value
   • Beta
   • Present value

3. ____________ is a model that describes the relationship between risk and expected return and that is used in the pricing of securities.

   • CAPM
   • Beta
   • Perpetuity
   • Annuity

4. Which of the following is the BEST definition of the security market line?

   • The opposite of a risk-free rate.
   • A security that is annualized.
   • A variable that relies on the CAPM model.
   • A visual depiction of an individual assets expected return using CAPM.

5. Beta effectively and accurately predicts the direction of the stock

   • True
   • False

6. If an active fund manager does better than CAPM predicts, this could indicate that the manager actually created value, something known as ____________.

   • negative alpha
   • alpha
   • return on investment
   • accounts payable turnover ratio

7. Reducing the allocating the investments to multiple and varying assets.

   • Diversification
   • Computing the beta and alpha
   • Gambling
   • Active investing