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According to our Fundamental Principle #1, what is the key relationship characteristic between risk and return?

Select one:

a. Investing in corporate bonds is the least risky strategy for portfolio investment.

b. Risk levels and potential returns have an inverse relationship.

c. Increases in unsystematic risk yield greater returns.

d. In order to receive a greater potential return, you must be willing to accept more risk.

e. Both b. and d. above

Diversification will

Select one:

a. not reduce a portfolios total risk

b. reduce a portfolios firm-specific risk

c. increase a portfolios total risk

d. not reduce a portfolios unsystematic risk

e. eliminate a portfolio's risk

An investor believes a stock currently selling at $20 per share will be a good investment if its share price drops $5. In such a situation, the investor may decide to place a ________ at $15.

Select one:

a. limit order to buy

b. market order

c. stop order to buy

d. stop order to sell

You buy 500 shares of BHC stock at $80 a share on margin. The initial margin is 50% and the maintenance margin requirement is 30%. If the stock price drops to $60, what will be the actual margin in your account?

Select one:

a. 67%

b. 50%

c. 33%

d. 25%

You just sold short 1,000 shares of a stock at $70 per share (your broker has a 60% initial margin requirement). You cover your short position when the price hits $50 per share one year later. If the company paid $1 per share in dividends during this period, what is your rate of return on the investment?

Select one:

a. 47.62%

b. 27.14%

c. 45.24%

d. -50.00%