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71.Which statement TRUE regarding diversification? a.The greater the systematic risk, the

Question : 71.Which statement TRUE regarding diversification? a.The greater the systematic risk, the : 1404060

 

 

71.Which statement is TRUE regarding diversification?

a.The greater the systematic risk, the greater the return required by the investor.

b.The greater the diversifiable risk, the greater the return required by the investor.

c.We are able to remove all systematic risk if enough stocks are added to a portfolio.

d.Systematic risk is diversifiable.

 

 

 

72.A brochure for an investment company reports average nominal returns of 9% per year. If the economy has averaged 3% inflation over these years, what is the average real return for this investment company?

a.3.00%

b.5.83%

c.6.00%

d.9.00%

 

 

 

 

StockExpected Return

Alpha10%

Beta6%

 

What is your expected portfolio return if you put 40% of you investment in Alpha, and 60% of your investment in Beta?

a.7.20%

b.7.60%

c.8.00%

d.8.40%

 

 

 

74.A stock was purchased two years ago for $20. The stock does not pay dividends and sells today for $26.00. If sold today, what was the annual realized return on your investment?

a.9%

b.12%

c.14%

d.15%

 

 

 

75.Which of the following statements is true?

a.While finance teaches that investments with higher risk should have higher returns there is no historical evidence in the capital markets to suggest this relationship exists.

b.Finance teaches that investments with higher risk should have higher returns and historical evidence in the capital markets suggests this relationship exists.

c.When individuals decide how to invest their money they must weigh the expected benefits (returns) against the costs of additional risk.

d.Both (a) and (c) are true.

e.Both (b) and (c) are true.

 

 

 

76.Why are Treasury bills among the safest investments in the world?

a.They are short-term investments and therefore extremely sensitive to interest rate changes.

b.They are long-term investments and therefore extremely insensitive to interest rate changes.

c.They are short-term investments and therefore fairly insensitive to interest rate changes.

d.They are backed by the full faith and credit of the U.S. government.

e.Both (c) and (d).

 

 

 

77.According to historical data, in the last 106 years returns on stocks in the U.S. have been negative about ____ of the time.

a.50%

b.20%

c.26%

d.42%

e.33%

 

 

 

78.Based upon a histogram of nominal returns on equities for the last 100 years, we can conjecture that stock returns follow a ____ distribution.

a.normal

b.skewed

c.uniform

d.binomial

e.None of the above

 

 

 

79.A normal distribution is ____.

a.skewed

b.symmetrical

c.uniform

d.all of the above

e.none of the above

 

 

 

80.Which of the following statements is true?

a.While asset classes with higher standard deviations tend to have higher returns, this relationship seems to break down for specific securities.

b.Asset classes with higher standard deviations tend to have higher returns, and this relationship tends to hold true when examining specific securities as well.

c.Asset classes with higher standard deviations tend to have higher returns, but when we examine specific assets within those classes we find that high standard deviation securities tend to have lower returns.

d.None of the above

 

 

 

 

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