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Investments - Practice Questions for Quiz 2 | FIR 3710, Quizzes of Investment Theory

University of Memphis (U of M)Investment Theory

Material Type: Quiz; Class: Investments; Subject: FIR Finance/Ins/Real Estate; University: University of Memphis; Term: Unknown 1989;

Typology: Quizzes

Pre 2010

Uploaded on 07/28/2009

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Practice Questions: Quiz 2
FIR 3710, Investments
1. The holding period return is the rate at which the investor's funds have grown over the
______.
A) last year
B) last quarter
C) last month
D) investment period
2. A probability distribution for HPRs lets us derive measurements for the ______ of the
investment.
A) risk
B) reward
C) both a and b above
D) none of the above
3. The complete portfolio refers to the investment in __________.
A) the risk-free asset
B) the risky portfolio
C) the sum of a and b
D) the difference between a and b
4. The arithmetic average of 12%, 15% and 20% is _________.
A) 15.7%
B) 15%
C) 17.2%
D) 20%
5. The market risk premium is defined as ___________.
A) the difference between the return on an index fund and the return on Treasury bills
B) the difference between the return on a small firm mutual fund and the return on the
Standard and Poor's 500 index
C) the difference between the return on the risky asset with the lowest returns and the
return on Treasury bills
D) the difference between the return on the highest yielding asset and the lowest yielding
asset.
6. The capital allocation line is also the __________.
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Practice Questions: Quiz 2

FIR 3710, Investments

  1. The holding period return is the rate at which the investor's funds have grown over the ______. A) last year B) last quarter C) last month D) investment period
  2. A probability distribution for HPRs lets us derive measurements for the ______ of the investment. A) risk B) reward C) both a and b above D) none of the above
  3. The complete portfolio refers to the investment in __________. A) the risk-free asset B) the risky portfolio C) the sum of a and b D) the difference between a and b
  4. The arithmetic average of 12%, 15% and 20% is _________. A) 15.7% B) 15% C) 17.2% D) 20%
  5. The market risk premium is defined as ___________. A) the difference between the return on an index fund and the return on Treasury bills B) the difference between the return on a small firm mutual fund and the return on the Standard and Poor's 500 index C) the difference between the return on the risky asset with the lowest returns and the return on Treasury bills D) the difference between the return on the highest yielding asset and the lowest yielding asset.
  6. The capital allocation line is also the __________.

A) investment opportunity set formed with a risky asset and a risk-free asset B) investment opportunity set formed with two risky assets C) line on which lie all portfolios that offer the same utility to a particular investor D) line on which lie all portfolios with the same expected rate of return and different standard deviations

  1. __________ is a true statement regarding risk averse investors. A) They only care about the rate of return B) They accept investments that are fair games C) They only accept investments that offer risk premium over the risk-free rate D) They are willing to accept lower return and high risk
  2. Consider the following two investment alternatives. First, a risky portfolio that pays 15% rate of return with a probability of 60% or 5% with a probability of 40%. Second, a treasury bill that pays 6%. The risk premium on the risky investment is __________. A) 1% B) 5% C) 9% D) 11%
  3. You have $500,000 available to invest. The risk-free rate as well as your borrowing rate is 8%. The return on the risky portfolio is 16%. If you wish to earn a 22% return, you should __________. A) invest $125,000 in the risk-free asset B) invest $375,000 in the risk-free asset C) borrow $125, D) borrow $375,
  4. Risk that can be eliminated through diversification is called ______ risk. A) unique B) firm-specific C) diversifiable D) all of the above
  5. Asset A has an expected return of 15% and a reward-to-variability ratio of .4. Asset B has an expected return of 20% and a reward-to-variability ratio of .3. A risk-averse investor would prefer a portfolio using the risk-free asset and _______. A) asset A B) asset B C) no risky asset D) can't tell from the data given
  1. Rational risk-averse investors will always prefer portfolios ______________. A) located on the efficient frontier to those located on the capital market line B) located on the capital market line to those located on the efficient frontier C) at or near the minimum variance point on the efficient frontier D) Rational risk-averse investors prefer the risk-free asset to all other asset choices.
  2. The standard deviation of return on investment A is .10 while the standard deviation of return on investment B is .05. If the covariance of returns on A and B is .0030, the correlation coefficient between the returns on A and B is __________. A). B). C). D).
  3. Consider two perfectly negatively correlated risky securities, A and B. Security A has an expected rate of return of 16% and a standard deviation of return of 20%. B has an expected rate of return 10% and a standard deviation of return of 30%. The weight of security B in the global minimum variance is __________. A) 10% B) 20% C) 40% D) 60%
  4. Which of the following portfolios cannot lie on the efficient frontier?

Portfolio Expected Return Standard Deviation I 8% 10% J 16% 20% K 15% 25% L 25% 38% A) Portfolio I B) Portfolio J C) Portfolio K D) Portfolio L

  1. The market value weighted average beta of firms included in the market index will always be ______________. A) 0 B) between 0 and 1 C) 1 D) There is no particular rule concerning the average beta of firms included in the

market index