Stock A has a beta of 1.25 and a standard deviation of returns of 15%. Stock B has a beta of 1.63 and a standard deviation of returns of 12%. If the market risk premium increases,

• A. the required returns on stocks A and B will remain the same.
• B. the required returns on stocks A and B will increase by the same amount.
• C. the required return on stock A will decrease more than that on stock B.
• D. the required return on stock A will increase more than that on stock B.
• E. the required return on stock B will increase more than that on stock A.

A typical measure for the risk-free rate of return is the

• A. U.S. Treasury bill rate.
• B. federal funds rate.
• C. short-term BBB-rated bond rate.
• D. 30-year fixed-rate mortgage rate
• E. prime lending rate.

A stock has an expected return of 10% with a standard deviation of 7%. If returns are normally distributed, then approximately two-thirds of the time the return on this stock will be

• A. between -13% and 20%.
• B. between 7% and 10%.
• C. between -4% and 24%.
• D. between 3% and 17%.

The beta of a risk-free asset is ___; the beta of a market portfolio is ___.

• A. zero; zero
• B. zero; one
• C. one; zero
• D. one; one
• E. one; two

Portfolio risk is typically measured by ________ while the risk of a single investment is measured by ________.

• A. beta; standard deviation
• B. beta; slope of the characteristic line
• C. standard deviation; beta
• D. security market line; standard deviation
• E. risk-free rate; market risk premium

Which of the following types of risk is diversifiable?

• A. systematic risk
• B. market risk
• C. unsystematic, or company-specific risk
• D. standard risk
• E. betagenic, or ecocentric risk

What is the name of the theoretical model that financial managers use to measure a required rate of return on a stock?

• A. the capital asset pricing model
• B. the standard deviation
• C. the coefficient of variation
• D. the MIRR
• E. the variance

You are considering buying some stock ABC, Inc. Which of the following are examples of non-diversifiable risks? I. Risk resulting from a general decline in the stock market. II. Risk resulting from a possible increase in income taxes. III. Risk resulting from an explosion at an ABC's production facility. IV. Risk resulting from a pending lawsuit against ABC.

• A. III and IV
• B. I and II
• C. II and III
• D. II, III, and IV
• E. I, II, III, and IV

If a stock's beta is zero, the stock's required return is

• A. equal the risk-free rate
• B. equal the required return on the market portfolio.
• C. above the required return on the market portfolio
• D. guaranteed (has no variation at all)
• E. zero

How can investors reduce risk without sacrificing an expected return?

• A. Increase the amount of money invested in the portfolio.
• B. Wait until the stock market rises.
• C. Purchase stocks with high standard deviations.
• D. Purchase stocks with high betas.
• E. Purchase a variety of securities; i.e., diversify.