Chapter 6 The Meaning and Measurement of Risk and Return

33) Of the following, which differs in meaning from the other three?

A) systematic risk

B) market risk

C) undiversifiable risk

D) asset-unique risk

34) Most stocks have betas between

A) -1.00 and 1.00.

B) 0.00 and 1.00.

C) 0.60 and 1.60.

D) 1.00 and 2.00.

35) A well-diversified portfolio includes investments in 50 securities. The portfolio's systematic risk is likely to be about

A) 50% of the total risk.

B) 40% of the total risk.

C) 25% of the total risk.

D) zero because risk is eliminated with a portfolio of 50 securities or more.

36) Beta is a statistical measure of

A) unsystematic risk.

B) total risk.

C) the standard deviation.

D) the relationship between an investment's returns and the market return.

37) A stock's beta is a measure of its

A) unsystematic risk.

B) systematic risk.

C) company-unique risk.

D) diversifiable risk.

38) If you hold a portfolio made up of the following stocks:

Investment Value Beta

Stock X $4,000 1.5

Stock Y $5,000 1.0

Stock Z $1,000 .5

What is the beta of the portfolio?

A) 1.33

B) 1.24

C) 1.15

D) 1.00

39) Which of the following is/are true?

A) Most of the unsystematic risk is removed by the time a portfolio contains 30 stocks.

B) Two points on the Characteristic Line are the T-bill and the market portfolio.

C) The greater the total risk of an asset, the greater the expected return.

D) All securities have a beta between 0 and 1.

40) If we are able to fully diversify, what is the appropriate measure of risk to use?

A) expected return

B) standard deviation

C) beta

D) risk-free rate of return

41) You hold a portfolio with the following securities:

Expected

Security Value Beta Return

Driscol Corporation 20% 3.20 36.0%

Evening Corporation 40% 1.60 20.0%

Frolic Corporation 40% .20 6.0%

What is the expected return for the portfolio?

A) 17.60%

B) 20.67%

C) 23.54%

D) 28.59%

42) The prices for the National Gasworks Corporation for the second quarter of 2012 are given below. The price of the stock on April 1, 2012 was $130. Find the holding period return for an investor who purchased the stock on April 1, 2012 and sold it the last day of June 2012.

Month End Price

April $125.00

May 138.50

June 132.75

A) -4.2%

B) -3.7%

C) 2.1%

D) 3.7%