Over the long term, a portfolio consisting of an S&P 500 index and an EAFE index will generally produce ________ returns and have ________ risk than a portfolio comprised solely of the S&P 500 index.

A) higher; more

B) higher; less

C) lower; more

D) lower; less

Over the long term, a portfolio consisting of an S&P 500 index and a short-term bond mutual fund will generally produce ________ returns and have ________ risk than a portfolio comprised solely of the S&P 500 index.

A) higher; more

B) lower; less

C) lower; more

D) lower; higher

A negative beta means that on average a stock moves in the opposite direction of the market. True or False?

The index used to represent market returns is always assigned a beta of 1.0. True or False?

Beta measures diversifiable risk while standard deviation measures systematic risk. True or False?

Which of the following represent unsystematic risks? I. the president of a company suddenly resigns II. the economy goes into a recessionary period III. a company's product is recalled for defects IV. the Federal Reserve unexpectedly changes interest rates

A) I, II and IV only

B) II and IV only

C) I and III only

D) I, II and III only

A measure of systematic risk is

A) standard deviation.

B) correlation coefficient.

C) beta.

D) variance.

When the stock market has bottomed out and is beginning to recover, the best portfolio to own is the one with a beta of

A) 0.0.

B) +0.5.

C) +1.5.

D) +2.0.

The stock of ABC, Inc. has a beta of 1.10. The market rate of return is expected to increase in value by 5%. ABC stock should

A) increase in value by 0.5%.

B) increase in value by 5.5%

C) decrease in value by 0.5%.

D) decrease in value by 5.5%.

The stock of ABC, Inc. has a beta of 1.50. The market rate of return is expected to increase in value by 5%. ABC stock should

A) increase in value by 0.5%.

B) increase in value by 7.5%.

C) decrease in value by 6.5%.

D) decrease in value by 5.5%.

The stock of ABC, Inc. has a beta of 2.10. The market rate of return is expected to increase in value by 4%. ABC stock should

A) increase in value by 0.5%.

B) increase in value by 8.4%.

C) decrease in value by 8.4%.

D) decrease in value by 5.5%.