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FIN5063 Week 5 Quiz

uestion 1

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When residual cash flows are high, stock values will be:
Select one:
a.
high.
b.
unpredictable.
c.
low.
d.
unchanged.

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Question 2

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The size of the firm measured as the current stock price multiplied by the number of shares outstanding is referred to as the firm's:
Select one:
a.
book value.
b.
constant growth model.
c.
market makers.
d.
market capitalization.

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Question 3

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If the management team of a company decides to increase the dividend payment for the current year

Select one:
a.

The stock price should decline because the present value will be lower

b.

The discount rate will change because it will change the risk of the cash flows.

c.

The stock price should rise because the present value will be higher

d.

The stock price should not be impacted because nothing fundamental about the company has been changed, and as there will be less funds generated to pay out future dividends.

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Question 4

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We can estimate a stock's value by:
Select one:
a.
using the book value of the total assets divided by the number of shares outstanding.
b.
compounding the past dividends and past stock price appreciation.
c.
using the book value of the total stockholder equity section.
d.
discounting the future dividends and future stock price appreciation.

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Question 5

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Which of the following will only be executed if the order's price conditions are met?
Select one:
a.
An unlimited order
b.
A trade
c.
A limit order
d.
A spread

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Question 6

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Which of the following is an electronic stock market without a physical trading floor?
Select one:
a.
American Stock Exchange
b.
Mercantile Exchange
c.
New York Stock Exchange
d.
Nasdaq Stock Market

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Question 7

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Sally has researched GLE and wants to pay no more than $50 for the stock. Currently, GLE is trading in the market for $51. Sally would be best served to:

Select one:
a.

use the bid-ask spread to her advantage.

b.

buy using a market order.

c.

sell first using a limit order and then buy using a market order

d.

buy using a limit order.

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Question 8

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Why is it expected to be using higher discount rates to discount stock dividend payments compared to the discount rates used to discount bond coupon payments?

Select one:
a.

Because the cash flows resulting from owning a stock are typically more risky than the cash flows resulting from owning a bond.

b.

Because dividends are paid more frequently than coupon payments.

c.

Because stocks typically pay higher payments than bonds.

d.

Because companies usually use more equity than debt.

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Question 9

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Stock valuation model dynamics make clear that lower dividend growth rates lead to

Select one:
a.

lower valuations.

b.

higher discount rates.

c.

lower discount rates.

d.

higher valuations.

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Question 10

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Stock valuation model dynamics make clear that higher discount rates lead to

Select one:
a.

lower growth rates.

b.

higher valuations.

c.

higher growth rates.

d.

lower valuations.

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Question 1

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If a preferred stock from Pfizer Inc. (PFE) pays $3.00 in annual dividends, and the required return on the preferred stock is 17 percent, what's the value of the stock?
Select one:
a.
$42.86
b.
$23.08
c.
$30.00
d.
$17.65

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Question 2

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A fast growing firm recently paid a dividend of $0.50 per share. The dividend is expected to increase at a 20 percent rate for the next 3 years. Afterwards, a more stable 10 percent growth rate can be assumed. If a 13 percent discount rate is appropriate for this stock, what is its value?
Select one:
a.
$26.66
b.
$25.75
c.
$14.13
d.
$23.65

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Question 3

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American Eagle Outfitters (AEO) recently paid a $0.38 dividend. The dividend is expected to grow at a 14.5 percent rate. At the current stock price of $26.07, what is the return shareholders are expecting?
Select one:
a.
16.31 percent
b.
16.17 percent
c.
17.32 percent
d.
17.18 percent

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Question 4

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A firm does not pay a dividend. It is expected to pay its first dividend of $0.10 per share in three years. This dividend will grow at 11 percent indefinitely. Using a 13 percent discount rate, compute the value of this stock.
Select one:
a.
$3.92
b.
$5.55
c.
$3.47
d.
$4.42

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Question 1

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A firm is expected to pay a dividend of $2.00 next year and $2.14 the following year. Financial analysts believe the stock will be at their target price of $65.00 in two years. Compute the value of this stock with a required return of 8 percent.
Select one:
a.
$59.41
b.
$67.99
c.
$57.31
d.
$65.57

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Question 2

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Financial analysts forecast Best Buy Company (BBY) growth for the future to be 13 percent. Their recent dividend was $0.69. What is the value of their stock when the required rate of return is 15.13 percent?
Select one:
a.
$53.05
b.
$36.61
c.
$49.00
d.
$14.80

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Question 3

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A fast growing firm recently paid a dividend of $0.50 per share. The dividend is expected to increase at a 20 percent rate for the next 3 years. Afterwards, a more stable 10 percent growth rate can be assumed. If a 13 percent discount rate is appropriate for this stock, what is its value?
Select one:
a.
$23.65
b.
$25.75
c.
$26.66
d.
$14.13

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Question 4

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American Eagle Outfitters (AEO) recently paid a $0.38 dividend. The dividend is expected to grow at a 14.5 percent rate. At the current stock price of $26.07, what is the return shareholders are expecting?
Select one:
a.
17.32 percent
b.
17.18 percent
c.
16.17 percent
d.
16.31 percent

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Question 1

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Which of the following statements is correct?

Select one:
a.

Bonds and stocks have a very high correlation because they are both financial assets.

b.

A single stock has a lot of diversifiable risk.

c.

None of these statements are correct.

d.

A single stock has more market risk than a diversified portfolio of stocks.

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Question 2

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This is defined as the volatility of an investment, which includes firm specific risk as well as market risk.

Select one:
a.

total risk

b.

diversifiable risk

c.

market risk

d.

standard deviation

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Question 3

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What is the main reason for calculating averages of past returns on stocks?

Select one:
a.

We think they will be useful in estimating future expected return.

b.

We think they will be useful in estimating the past risk of the stock’s returns.

c.

We think they will be useful in estimating the current risk of the stock’s returns.

d.

We think they will be useful in estimating the future risk of the stock’s returns.

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Question 4

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Which of the following is correct?
Select one:
a.
All of these statements are correct.
b.
Combining both stocks and bonds will likely reduce risk in a portfolio because the two assets have low correlation.
c.
Your optimal portfolio is an efficient portfolio with your desired risk level.
d.
Investors can reduce the risk in their portfolio by investing in international stocks since they tend to have low correlation with our own stock market.

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Question 5

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Which of these statements is true?

Select one:
a.

When people purchase a stock, they know exactly what their dollar and percent return are going to be.

b.

Many people purchase stocks as they find comfort in the certainty for this safe form of investing.

c.

When people purchase a stock, they do not know what their return is going to be - either short term or in the long run.

d.

When people purchase a stock, they know the short-term return, but not the long term return.

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Question 6

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Determine which one of these three portfolios dominates another. Name the dominated portfolio and the portfolio that dominates it. Portfolio Blue has an expected return of 13 percent and risk of 17 percent. The expected return and risk of portfolio Yellow are 15 percent and 19 percent, and for the Purple portfolio are 12 percent and 18 percent.

Select one:
a.

Portfolio Blue dominates Portfolio Purple

b.

Portfolio Purple dominates Portfolio Yellow

c.

Portfolio Blue dominates Portfolio Yellow

d.

Portfolio Purple dominates Portfolio Blue

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Question 7

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Portfolio Weights An investor owns $10,000 of Adobe Systems stock, $15,000 of Dow Chemical, and $25,000 of Office Depot. What are the portfolio weights of each stock?
Select one:
a.
Adobe System = 0.3333, Dow Chemical = 0.3333, Office Depot = 0.3333
b.
Adobe System = 0.2, Dow Chemical = 0.3, Office Depot = 0.5
c.
Adobe System = 0.2667, Dow Chemical = 0.3333, Office Depot = 0.4
d.
Adobe System = 0.3, Dow Chemical = 0.2, Office Depot = 0.5

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Question 8

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This is defined as the portion of total risk that is attributable to firm (or industry) factors and can be reduced through diversification.

Select one:
a.

firm specific risk

b.

market risk

c.

modern portfolio risk

d.

total risk

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Question 9

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Jane Adams invests all her money in the stock of one firm. Which of the following will likely be true?

Select one:
a.

Her return will have more volatility than the return in the overall stock market.

b.

There is no relationship between her return and the return in the overall stock market.

c.

Her return will have the same volatility as the return in the overall stock market.

d.

Her return will have less volatility than the return in the overall stock market.

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Question 10

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Assume a risk-averse investor holds a portfolio of bonds, because bonds are known to be less risky than stocks. Adding some stocks to the existing bond portfolio would most likely

Select one:
a.

increase the risk of the portfolio because stocks are more risky than bonds, and also increase the return of the portfolio.

b.

reduce the risk of the portfolio even though stocks are more risky than bonds.

c.

reduce the return of the portfolio.

d.

increase the risk of the portfolio because stocks are more risky than bonds, without impacting the return of the portfolio.

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Question 1

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FedEx Corp. stock ended the previous year at $118.30 per share. It paid a $1.30 per share dividend last year. It ended last year at $131.70. If you owned 500 shares of FedEx, what was your dollar return?
Select one:
a.
$6,700
b.
$7,350
c.
$14.70
d.
$6,050

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Question 2

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FedEx Corp. stock ended the previous year at $96.20 per share. It paid a $0.80 per share dividend last year. It ended last year at $105.80. If you owned 100 shares of FedEx, what was your percent return?
Select one:
a.
9.83%
b.
9.98%
c.
10.81%
d.
10.97%

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Question 3

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Year-to-date, Company O had earned a 3.60 percent return. During the same time period, Company V earned - 2.50 percent and Company M earned 1.60 percent. If you have a portfolio made up of 20 percent Company O, 30 percent Company V, and 50 percent Company M, what is your portfolio return?
Select one:
a.
0.77 percent
b.
0.90 percent
c.
12.87 percent
d.
2.70 percent

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Question 4

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The past four monthly returns for K and Company are -2.60 percent, 1.80 percent, 2.60 percent, and 1.50 percent. What is the standard deviation of monthly returns?
Select one:
a.
0.05 percent
b.
4.04 percent
c.
1.35 percent
d.
2.33 percent

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Question 5

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The past four monthly returns for K and Company are 1.50 percent, 0.40 percent, - 0.60 percent, and 1.20 percent. What is the average monthly return?
Select one:
a.
0.50 percent
b.
0.63 percent
c.
0.83 percent
d.
2.50 percent

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Question 1

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The past four monthly returns for K and Company are 0.60 percent, - 0.80 percent, 1.80 percent, and 2.70 percent. What is the standard deviation of monthly returns?
Select one:
a.
0.02 percent
b.
2.63 percent
c.
0.88 percent
d.
1.52 percent

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Question 2

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FedEx Corp. stock ended the previous year at $136.20 per share. It paid a $0.60 per share dividend last year. It ended last year at $145.50. If you owned 400 shares of FedEx, what was your percent return?
Select one:
a.
6.39%
b.
7.27%
c.
7.64%
d.
6.83%

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Question 3

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Year-to-date, Company O had earned a 3.50 percent return. During the same time period, Company V earned 1.70 percent and Company M earned - 1.20 percent. If you have a portfolio made up of 50 percent Company O, 30 percent Company V, and 20 percent Company M, what is your portfolio return?
Select one:
a.
4.00 percent
b.
6.67 percent
c.
2.02 percent
d.
1.33 percent

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Question 4

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FedEx Corp. stock ended the previous year at $136.20 per share. It paid a $0.60 per share dividend last year. It ended last year at $145.50. If you owned 400 shares of FedEx, what was your dollar return?
Select one:
a.
$3,480
b.
$9.90
c.
$3,960
d.
$3,720

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Question 5

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The past four monthly returns for K and Company are 2.50 percent, 1.20 percent, - 0.40 percent, and 0.80 percent. What is the average monthly return?
Select one:
a.
4.10 percent
b.
0.82 percent
c.
1.37 percent
d.
1.03 percent

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Question 1

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All of the following are stock market indices except _________________.
Select one:
a.
Standard & Poor's 500 Index
b.
Mercantile 1000
c.
Dow Jones Industrial Average
d.
Nasdaq Composite Index

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Question 2

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Why is it expected to be using higher discount rates to discount stock dividend payments compared to the discount rates used to discount bond coupon payments?

Select one:
a.

Because companies usually use more equity than debt.

b.

Because dividends are paid more frequently than coupon payments.

c.

Because the cash flows resulting from owning a stock are typically more risky than the cash flows resulting from owning a bond.

d.

Because stocks typically pay higher payments than bonds.

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Question 3

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As residual claimants, these investors claim any cash flows to the firm that remain after the firm pays all other claims.
Select one:
a.
preferred stockholders
b.
bondholders
c.
creditors
d.
common stockholders

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Question 4

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Which of the following is an electronic stock market without a physical trading floor?
Select one:
a.
New York Stock Exchange
b.
Nasdaq Stock Market
c.
American Stock Exchange
d.
Mercantile Exchange

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Question 5

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Stock valuation model dynamics make clear that higher dividend growth rates lead to

Select one:
a.

higher discount rates.

b.

lower valuations.

c.

higher valuations.

d.

lower discount rates.

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Question 6

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Sally has researched GLE and wants to pay no more than $50 for the stock. Currently, GLE is trading in the market for $51. Sally would be best served to:

Select one:
a.

use the bid-ask spread to her advantage.

b.

buy using a market order.

c.

buy using a limit order.

d.

sell first using a limit order and then buy using a market order

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Question 7

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If the management team of a company decides to increase the dividend payment for the current year

Select one:
a.

The stock price should not be impacted because nothing fundamental about the company has been changed, and as there will be less funds generated to pay out future dividends.

b.

The discount rate will change because it will change the risk of the cash flows.

c.

The stock price should decline because the present value will be lower

d.

The stock price should rise because the present value will be higher

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Question 8

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Stock valuation model dynamics make clear that lower discount rates lead to

Select one:
a.

lower growth rates.

b.

lower valuations.

c.

higher valuations.

d.

higher growth rates.

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Question 9

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Stock valuation model dynamics make clear that higher discount rates lead to

Select one:
a.

higher growth rates.

b.

lower growth rates.

c.

lower valuations.

d.

higher valuations.

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Question 10

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GEN has 10 million shares outstanding and a stock price of $89.25. What is GEN's market capitalization?
Select one:
a.
$89,250,000,000
b.
$892,500,000
c.
$89,250,000
d.
$892,500

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Question 8

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Which of these are valued as a special zero-growth case of the constant growth rate model?
Select one:
a.
Future dividends
b.
Common stock
c.
Future stock prices
d.
Preferred stock

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Question 9

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These are valued as a special zero-growth case of the constant growth rate model.
Select one:
a.
future stock prices
b.
common stock
c.
future dividends
d.
preferred stock

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Question 3

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A firm recently paid a $1.00 annual dividend. The dividend is expected to increase by 15 percent in each of the next four years. In the fourth year, the stock price is expected to be $100. If the required rate for this stock is 16 percent, what is its value?
Select one:
a.
$58.74
b.
$63.30
c.
$62.87
d.
$59.14

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Question 1

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Which of the following statements is correct?
Select one:
a.
None of these statements is correct.
b.
By adding stocks to your portfolio, it is possible to effectively eliminate nearly all of the market risk.
c.
A dominant portfolio is one that has the highest risk and highest return within a set of portfolios.
d.
The dollar return is a more useful measure than percentage return to compare performance among investors because it more accurately reflects the change in wealth of the investor.

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Question 2

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What is the main reason for calculating standard deviation of past returns on a stock?

Select one:
a.

We think it will be useful in estimating the future expected return.

b.

We think it will be useful in estimating the past risk of the stock’s returns.

c.

We think it will be useful in estimating the past expected return.

d.

We think it will be useful in estimating the future risk of the stock’s returns.

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Question 3

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Portfolio Weights You have $15,040 to invest. You want to purchase shares of Company Air at $42.50, Company B at $51.50, and Company F at $9.75. How many shares of each company should you purchase so that your portfolio consists of 20 percent Company A, 40 percent Company B, and 40 percent Company F? Report only whole stock shares.
Select one:
a.
Company A = 85 shares, Company B = 21shares, Company F = 39 shares
b.
Company A = 20 shares, Company B = 40 shares, Company F = 40 shares
c.
Company A = 71 shares, Company B = 117 shares, Company F = 615 shares
d.
Company A = 353 shares, Company B = 291 shares, Company F = 1538 shares

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Question 4

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To find the percentage return of an investment,

Select one:
a.

multiply the dollar return by the investment's value at the beginning of the period.

b.

multiply the dollar return by the investment's value at the end of the period.

c.

divide the dollar return by the investment's value at the beginning of the period.

d.

divide the dollar return by the investment's value at the end of the period.

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Question 5

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Jenna receives an investment newsletter that recommends that she invest in a stock that has doubled the return of the S&P 500 in the last two months. It also claims that this stock is a "safe bet" for the future. Which of the following statements is correct regarding this information?
Select one:
a.
The investment newsletter contains contrary information since the stock must be a high risk and therefore cannot also be a "safe bet."
b.
It is common for individual stocks to double the return of the S&P 500 and still be a "safe bet."
c.
None of these statements is correct.
d.
This investment newsletter is most likely correct because they most likely have some special knowledge about the stock.

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Question 6

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Diversification works better when

Select one:
a.

The difference in expected returns is small.

b.

The difference in expected returns is high.

c.

Stock returns are less correlated with each other.

d.

Stock returns are more correlated with each other.

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Question 7

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Which of the following statements is correct?
Select one:
a.
None of these statements is correct.
b.
Most common stocks have low correlation approaching zero with each other since they operate in different industries.
c.
A correlation of -1.0 means that the two firms are uncorrelated or that they have no relationship.
d.
For a few firms in completely different industries, it is possible to have a correlation that approaches -2.0.

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Question 8

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Which of these is defined as a combination of investment assets held by an investor?
Select one:
a.
Portfolio
b.
Bundle
c.
All of these
d.
Market basket

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Question 9

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Consider the following correlations:

 Picture 

Given this data, which of the following is most preferable if an investor can only select one pair of companies?
Select one:
a.
It does not matter which two are selected—there is no preference order.
b.
Disney and IBM
c.
Disney and Apple
d.
Apple and IBM

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Question 10

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Which of the following statements is correct?

Select one:
a.

A single stock has a lot of diversifiable risk.

b.

Bonds and stocks have a very high correlation because they are both financial assets.

c.

None of these statements are correct.

d.

A single stock has more market risk than a diversified portfolio of stocks.

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Question 1

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Sally wants to invest in only two stocks. Which pair of stocks should Sally select, provided they all offer similar returns?

Select one:
a.

Stocks C and D, which move in opposite directions at the same time.

b.

Stocks A and B, which move downward at the same time.

c.

Stocks G and H, which move randomly at the same time.

d.

Stocks E and F, which  move upward at the same time.

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Question 2

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Determine which one of these three portfolios dominates another. Name the dominated portfolio and the portfolio that dominates it. Portfolio Blue has an expected return of 13 percent and risk of 17 percent. The expected return and risk of portfolio Yellow are 15 percent and 19 percent, and for the Purple portfolio are 12 percent and 18 percent.

Select one:
a.

Portfolio Purple dominates Portfolio Yellow

b.

Portfolio Purple dominates Portfolio Blue

c.

Portfolio Blue dominates Portfolio Purple

d.

Portfolio Blue dominates Portfolio Yellow

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Question 3

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Which of these statements is true?

Select one:
a.

When people purchase a stock, they do not know what their return is going to be - either short term or in the long run.

b.

When people purchase a stock, they know exactly what their dollar and percent return are going to be.

c.

When people purchase a stock, they know the short-term return, but not the long term return.

d.

Many people purchase stocks as they find comfort in the certainty for this safe form of investing.

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Rank the following three stocks by their level of total risk, highest to lowest. Rail Haul has an average return of 8 percent and standard deviation of 10 percent. The average return and standard deviation of Idol Staff are 10 percent and 15 percent; and of Poker-R-Us are 6 percent and 20 percent.

Select one:
a.

Poker-R-Us, Idol Staff, Rail Haul

b.

Idol Staff, Rail Haul, Poker-R-Us

c.

Rail Haul, Poker-R-Us, Idol Staff

d.

Idol Staff, Poker-R-Us, Rail Haul

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Question 5

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Which of the following describes what will occur as you randomly add stocks to your portfolio?
Select one:
a.
The nondiversifiable risk will decrease.
b.
The portfolio return will increase.
c.
The diversifiable risk will decrease.
d.
Both the diversifiable and nondiversifiable risk will decrease.

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Question 6

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Which of these is a measure summarizing the overall past performance of an investment?
Select one:
a.
Percentage return
b.
Market return
c.
Average return
d.
Dollar return

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Question 7

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Jane Adams invests all her money in the stock of one firm. Which of the following will likely be true?

Select one:
a.

There is no relationship between her return and the return in the overall stock market.

b.

Her return will have less volatility than the return in the overall stock market.

c.

Her return will have more volatility than the return in the overall stock market.

d.

Her return will have the same volatility as the return in the overall stock market.

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Question 8

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This is defined as the portion of total risk that is attributable to firm (or industry) factors and can be reduced through diversification.

Select one:
a.

total risk

b.

market risk

c.

modern portfolio risk

d.

firm specific risk

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Question 9

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Which of these is the term for portfolios with the highest return possible for each risk level?
Select one:
a.
Optimal portfolios
b.
Total portfolios
c.
Modern portfolios
d.
Efficient portfolios

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Question 10

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Which of the following is correct?
Select one:
a.
All of these statements are correct.
b.
Combining both stocks and bonds will likely reduce risk in a portfolio because the two assets have low correlation.
c.
Your optimal portfolio is an efficient portfolio with your desired risk level.
d.
Investors can reduce the risk in their portfolio by investing in international stocks since they tend to have low correlation with our own stock market.

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Question 1

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This is a measurement of the co-movement between two variables that ranges between -1 and +1.

Select one:
a.

total risk

b.

correlation

c.

coefficient of variation

d.

standard deviation

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Question 2

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From 1950 to 2007, the average return in the stock market, as measured by the S&P 500, was 13.2 percent and a standard deviation of 17 percent. Given this information, which of the following statements is correct?
Select one:
a.
With a standard deviation this high, it is likely that an investor will lose money in some years over a 25-year investment period.
b.
All of these statements are correct.
c.
With an average return this high, it is unlikely that an investor will lose money in the stock market in the next year or two.
d.
This investment is not very good since the standard deviation is greater than the average return.

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Question 3

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Which of the following is the correct ranking from least risky to most risky?
Select one:
a.
Stocks, long-term Treasury bond, Treasury bills
b.
Stocks, Treasury bills, long-term Treasury bonds
c.
Treasury bills, long-term Treasury bonds, stocks
d.
Long-term Treasury bonds, stocks, Treasury bills

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Consider the following correlations:

 Picture 

Given this data, which of the following is most preferable if an investor can only select one pair of companies?
Select one:
a.
Disney and IBM
b.
Apple and IBM
c.
Disney and Apple
d.
It does not matter which two are selected—there is no preference order.

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Question 5

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Which of the following are investor diversification problems?

Select one:
a.

Investors seem to prefer local firms thereby limiting diversification opportunities.

b.

Many households hold relatively few individual stocks—the median is three.

c.

Many employees hold mostly their employer's stocks as investments.

d.

All of these are investor diversification problems.

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Question 6

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Which statement is true?

Select one:
a.

The larger the standard deviation, the higher the total risk.

b.

The larger the standard deviation, the more portfolio risk.

c.

The larger the standard deviation, the lower the total risk.

d.

The standard deviation is not an indication of total risk.

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Question 7

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Which of these is the term for portfolios with the highest return possible for each risk level?
Select one:
a.
Total portfolios
b.
Optimal portfolios
c.
Efficient portfolios
d.
Modern portfolios

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Question 8

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Assume a risk-averse investor holds a portfolio of bonds, because bonds are known to be less risky than stocks. Adding some stocks to the existing bond portfolio would most likely

Select one:
a.

reduce the return of the portfolio.

b.

increase the risk of the portfolio because stocks are more risky than bonds, without impacting the return of the portfolio.

c.

increase the risk of the portfolio because stocks are more risky than bonds, and also increase the return of the portfolio.

d.

reduce the risk of the portfolio even though stocks are more risky than bonds.

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Question 9

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Jane Adams invests all her money in the stock of one firm. Which of the following will likely be true?

Select one:
a.

Her return will have less volatility than the return in the overall stock market.

b.

Her return will have more volatility than the return in the overall stock market.

c.

There is no relationship between her return and the return in the overall stock market.

d.

Her return will have the same volatility as the return in the overall stock market.

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Question 10

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Which of the following statements is correct?
Select one:
a.
By adding stocks to your portfolio, it is possible to effectively eliminate nearly all of the market risk.
b.
The dollar return is a more useful measure than percentage return to compare performance among investors because it more accurately reflects the change in wealth of the investor.
c.
None of these statements is correct.
d.
A dominant portfolio is one that has the highest risk and highest return within a set of portfolios.

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Question 1

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Portfolio Weights You have $15,040 to invest. You want to purchase shares of Company Air at $42.50, Company B at $51.50, and Company F at $9.75. How many shares of each company should you purchase so that your portfolio consists of 20 percent Company A, 40 percent Company B, and 40 percent Company F? Report only whole stock shares.
Select one:
a.
Company A = 353 shares, Company B = 291 shares, Company F = 1538 shares
b.
Company A = 20 shares, Company B = 40 shares, Company F = 40 shares
c.
Company A = 71 shares, Company B = 117 shares, Company F = 615 shares
d.
Company A = 85 shares, Company B = 21shares, Company F = 39 shares

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Question 2

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Diversification works better when

Select one:
a.

Stock returns are less correlated with each other.

b.

The difference in expected returns is high.

c.

Stock returns are more correlated with each other.

d.

The difference in expected returns is small.

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Question 3

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Which of the following is correct?
Select one:
a.
Your optimal portfolio is an efficient portfolio with your desired risk level.
b.
Combining both stocks and bonds will likely reduce risk in a portfolio because the two assets have low correlation.
c.
Investors can reduce the risk in their portfolio by investing in international stocks since they tend to have low correlation with our own stock market.
d.
All of these statements are correct.

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Question 4

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Interest rates, inflation and economic growth are economic factors that are examples of ______________________.

Select one:
a.

Firm-specific risks that can be diversified away

b.

Market risk

c.

None of these statements are correct

d.

External factors that are neither firm specific risk nor market risk

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Question 5

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Assume a risk-averse investor holds a portfolio of bonds, because bonds are known to be less risky than stocks. Adding some stocks to the existing bond portfolio would most likely

Select one:
a.

reduce the return of the portfolio.

b.

reduce the risk of the portfolio even though stocks are more risky than bonds.

c.

increase the risk of the portfolio because stocks are more risky than bonds, without impacting the return of the portfolio.

d.

increase the risk of the portfolio because stocks are more risky than bonds, and also increase the return of the portfolio.

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Question 6

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Consider the following correlations:

 Picture 

Given this data, which of the following is most preferable if an investor can only select one pair of companies?
Select one:
a.
It does not matter which two are selected—there is no preference order.
b.
Disney and Apple
c.
Disney and IBM
d.
Apple and IBM

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Question 7

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Sally wants to invest in only two stocks. Which pair of stocks should Sally select, provided they all offer similar returns?

Select one:
a.

Stocks G and H, which move randomly at the same time.

b.

Stocks E and F, which  move upward at the same time.

c.

Stocks C and D, which move in opposite directions at the same time.

d.

Stocks A and B, which move downward at the same time.

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Question 8

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Portfolio Weights An investor owns $10,000 of Adobe Systems stock, $15,000 of Dow Chemical, and $25,000 of Office Depot. What are the portfolio weights of each stock?
Select one:
a.
Adobe System = 0.3, Dow Chemical = 0.2, Office Depot = 0.5
b.
Adobe System = 0.2667, Dow Chemical = 0.3333, Office Depot = 0.4
c.
Adobe System = 0.2, Dow Chemical = 0.3, Office Depot = 0.5
d.
Adobe System = 0.3333, Dow Chemical = 0.3333, Office Depot = 0.3333

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Question 9

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To find the percentage return of an investment,

Select one:
a.

multiply the dollar return by the investment's value at the end of the period.

b.

divide the dollar return by the investment's value at the end of the period.

c.

multiply the dollar return by the investment's value at the beginning of the period.

d.

divide the dollar return by the investment's value at the beginning of the period.

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Question 10

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What is the main reason for calculating averages of past returns on stocks?

Select one:
a.

We think they will be useful in estimating the current risk of the stock’s returns.

b.

We think they will be useful in estimating the past risk of the stock’s returns.

c.

We think they will be useful in estimating the future risk of the stock’s returns.

d.

We think they will be useful in estimating future expected return.

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uestion 1

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From 1950 to 2007, the average return in the stock market, as measured by the S&P 500, was 13.2 percent and a standard deviation of 17 percent. Given this information, which of the following statements is correct?
Select one:
a.
All of these statements are correct.
b.
With an average return this high, it is unlikely that an investor will lose money in the stock market in the next year or two.
c.
With a standard deviation this high, it is likely that an investor will lose money in some years over a 25-year investment period.
d.
This investment is not very good since the standard deviation is greater than the average return.

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Question 2

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Which of the following statements is correct?
Select one:
a.
We can typically add many stocks together to fully eliminate the market risk in a portfolio.
b.
Uncorrelated assets have a correlation of -1.0.
c.
None of these statements is correct.
d.
Most common stocks are positively correlated with each other because they are impacted by the same economic factors.

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Question 3

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This is defined as the volatility of an investment, which includes firm specific risk as well as market risk.

Select one:
a.

total risk

b.

diversifiable risk

c.

market risk

d.

standard deviation

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Question 4

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Which of the following are investor diversification problems?

Select one:
a.

Investors seem to prefer local firms thereby limiting diversification opportunities.

b.

Many households hold relatively few individual stocks—the median is three.

c.

All of these are investor diversification problems.

d.

Many employees hold mostly their employer's stocks as investments.

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Question 5

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Which of the following is correct?
Select one:
a.
There is a positive relationship between risk and return.
b.
Total risk is measured by the standard deviation.
c.
If you observe a high variability in a stock's returns you can infer that the stock is very risky.
d.
All of these statements are correct.

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Question 6

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Rank the following three stocks by their level of total risk, highest to lowest. Rail Haul has an average return of 8 percent and standard deviation of 10 percent. The average return and standard deviation of Idol Staff are 10 percent and 15 percent; and of Poker-R-Us are 6 percent and 20 percent.

Select one:
a.

Poker-R-Us, Idol Staff, Rail Haul

b.

Idol Staff, Rail Haul, Poker-R-Us

c.

Idol Staff, Poker-R-Us, Rail Haul

d.

Rail Haul, Poker-R-Us, Idol Staff

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Question 7

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Jenna receives an investment newsletter that recommends that she invest in a stock that has doubled the return of the S&P 500 in the last two months. It also claims that this stock is a "safe bet" for the future. Which of the following statements is correct regarding this information?
Select one:
a.
This investment newsletter is most likely correct because they most likely have some special knowledge about the stock.
b.
None of these statements is correct.
c.
The investment newsletter contains contrary information since the stock must be a high risk and therefore cannot also be a "safe bet."
d.
It is common for individual stocks to double the return of the S&P 500 and still be a "safe bet."

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Question 8

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Sally wants to invest in only two stocks. Which pair of stocks should Sally select, provided they all offer similar returns?

Select one:
a.

Stocks C and D, which move in opposite directions at the same time.

b.

Stocks E and F, which  move upward at the same time.

c.

Stocks G and H, which move randomly at the same time.

d.

Stocks A and B, which move downward at the same time.

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Question 9

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Which of these is the portion of total risk that is attributable to overall economic factors?
Select one:
a.
Modern portfolio risk
b.
Firm specific risk
c.
Total risk
d.
Market risk

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Question 10

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Which of the following statements is correct?
Select one:
a.
The dollar return is a more useful measure than percentage return to compare performance among investors because it more accurately reflects the change in wealth of the investor.
b.
A dominant portfolio is one that has the highest risk and highest return within a set of portfolios.
c.
By adding stocks to your portfolio, it is possible to effectively eliminate nearly all of the market risk.
d.
None of these statements is correct.

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Question 1

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This is another term for market risk.

Select one:
a.

firm specific risk

b.

Non-diversifiable risk

c.

modern portfolio risk

d.

total risk

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Question 2

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Which of these is defined as a combination of investment assets held by an investor?
Select one:
a.
All of these
b.
Portfolio
c.
Market basket
d.
Bundle

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Question 3

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Which of the following statements is correct?
Select one:
a.
A correlation of -1.0 means that the two firms are uncorrelated or that they have no relationship.
b.
None of these statements is correct.
c.
Most common stocks have low correlation approaching zero with each other since they operate in different industries.
d.
For a few firms in completely different industries, it is possible to have a correlation that approaches -2.0.

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Question 4

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Which of the following is correct?
Select one:
a.
All of these statements are correct.
b.
Combining both stocks and bonds will likely reduce risk in a portfolio because the two assets have low correlation.
c.
Your optimal portfolio is an efficient portfolio with your desired risk level.
d.
Investors can reduce the risk in their portfolio by investing in international stocks since they tend to have low correlation with our own stock market.

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Question 5

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What is the main reason for calculating standard deviation of past returns on a stock?

Select one:
a.

We think it will be useful in estimating the future expected return.

b.

We think it will be useful in estimating the future risk of the stock’s returns.

c.

We think it will be useful in estimating the past risk of the stock’s returns.

d.

We think it will be useful in estimating the past expected return.

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Question 6

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What is the best definition of efficient portfolio?

Select one:
a.

Efficient portfolio is a portfolio that dominates all other portfolios.

b.

Efficient portfolio is a portfolio with the smallest standard deviation of returns.

c.

Efficient portfolio is a portfolio with the highest expected return.

d.

Efficient portfolio is a portfolio that is not dominated by any other portfolio.

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Question 7

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To find the percentage return of an investment,

Select one:
a.

divide the dollar return by the investment's value at the beginning of the period.

b.

multiply the dollar return by the investment's value at the end of the period.

c.

divide the dollar return by the investment's value at the end of the period.

d.

multiply the dollar return by the investment's value at the beginning of the period.

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Question 8

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Determine which one of these three portfolios dominates another. Name the dominated portfolio and the portfolio that dominates it. Portfolio Blue has an expected return of 13 percent and risk of 17 percent. The expected return and risk of portfolio Yellow are 15 percent and 19 percent, and for the Purple portfolio are 12 percent and 18 percent.

Select one:
a.

Portfolio Purple dominates Portfolio Blue

b.

Portfolio Blue dominates Portfolio Purple

c.

Portfolio Purple dominates Portfolio Yellow

d.

Portfolio Blue dominates Portfolio Yellow

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Question 9

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Stock A has a required return of 19%. Stock B has a required return of 26%. Assume a risk-free rate of 4.75%. Which of the following is most likely a correct statement about the two stocks?

Select one:
a.

An investor is most likely to consider stock B to be riskier than stock A.

b.

An investor is most likely to consider stock A and stock B to have the same risk.

c.

An investor would most likely need more information to decide which of the two stocks is riskier.

d.

An investor is most likely to consider stock A to be riskier than stock B.

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Question 10

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Which of the following statements is correct?
Select one:
a.
None of these statements is correct.
b.
Uncorrelated assets have a correlation of -1.0.
c.
We can typically add many stocks together to fully eliminate the market risk in a portfolio.
d.
Most common stocks are positively correlated with each other because they are impacted by the same economic factors.

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Question 1

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The past four monthly returns for K and Company are -2.60 percent, 1.80 percent, 2.60 percent, and 1.50 percent. What is the average monthly return?
Select one:
a.
0.83 percent
b.
3.30 percent
c.
1.10 percent
d.
0.66 percent

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Question 2

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FedEx Corp. stock ended the previous year at $165.30 per share. It paid a $1.20 per share dividend last year. It ended last year at $173.90. If you owned 600 shares of FedEx, what was your percent return?
Select one:
a.
5.64%
b.
4.95%
c.
5.93%
d.
5.20%

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Question 3

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The past four monthly returns for K and Company are 1.50 percent, 0.40 percent, - 0.60 percent, and 1.20 percent. What is the standard deviation of monthly returns?
Select one:
a.
0.54 percent
b.
0.01 percent
c.
0.94 percent
d.
1.63 percent

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Question 4

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Year-to-date, Company O had earned a 3.50 percent return. During the same time period, Company V earned 1.70 percent and Company M earned - 1.20 percent. If you have a portfolio made up of 50 percent Company O, 30 percent Company V, and 20 percent Company M, what is your portfolio return?
Select one:
a.
2.02 percent
b.
4.00 percent
c.
6.67 percent
d.
1.33 percent

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Question 5

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FedEx Corp. stock ended the previous year at $96.20 per share. It paid a $0.80 per share dividend last year. It ended last year at $105.80. If you owned 100 shares of FedEx, what was your dollar return?
Select one:
a.
$880
b.
$1,170
c.
$960
d.
1,040

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uestion 1

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FedEx Corp. stock ended the previous year at $136.20 per share. It paid a $0.60 per share dividend last year. It ended last year at $145.50. If you owned 400 shares of FedEx, what was your dollar return?
Select one:
a.
$3,720
b.
$9.90
c.
$3,480
d.
$3,960

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Question 2

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The past four monthly returns for K and Company are 0.60 percent, - 0.80 percent, 1.80 percent, and 2.70 percent. What is the average monthly return?
Select one:
a.
4.30 percent
b.
1.43 percent
c.
1.08 percent
d.
0.86 percent

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Question 3

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The past four monthly returns for K and Company are -2.60 percent, 1.80 percent, 2.60 percent, and 1.50 percent. What is the standard deviation of monthly returns?
Select one:
a.
0.05 percent
b.
4.04 percent
c.
2.33 percent
d.
1.35 percent

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Question 4

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Year-to-date, Company O had earned a 2.10 percent return. During the same time period, Company V earned - 0.80 percent and Company M earned 3.70 percent. If you have a portfolio made up of 30 percent Company O, 20 percent Company V, and 50 percent Company M, what is your portfolio return?
Select one:
a.
10.40 percent
b.
5.00 percent
c.
1.67 percent
d.
2.32 percent

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Question 5

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FedEx Corp. stock ended the previous year at $165.30 per share. It paid a $1.20 per share dividend last year. It ended last year at $173.90. If you owned 600 shares of FedEx, what was your percent return?
Select one:
a.
5.20%
b.
5.93%
c.
4.95%
d.
5.64%

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Question 1

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FedEx Corp. stock ended the previous year at $136.20 per share. It paid a $0.60 per share dividend last year. It ended last year at $145.50. If you owned 400 shares of FedEx, what was your dollar return?
Select one:
a.
$3,960
b.
$3,720
c.
$9.90
d.
$3,480

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Question 2

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The past four monthly returns for K and Company are 3.40 percent, 2.30 percent, 0.80 percent, and - 0.70 percent. What is the standard deviation of monthly returns?
Select one:
a.
1.03 percent
b.
0.03 percent
c.
1.79 percent
d.
3.09 percent

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Question 3

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The past four monthly returns for K and Company are 0.60 percent, - 0.80 percent, 1.80 percent, and 2.70 percent. What is the average monthly return?
Select one:
a.
1.43 percent
b.
1.08 percent
c.
4.30 percent
d.
0.86 percent

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Question 4

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Year-to-date, Company O had earned a 2.30 percent return. During the same time period, Company V earned 1.90 percent and Company M earned - 3.60 percent. If you have a portfolio made up of 40 percent Company O, 40 percent Company V, and 20 percent Company M, what is your portfolio return?
Select one:
a.
0.20 percent
b.
0.60 percent
c.
- 7.50 percent
d.
0.96 percent

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Question 5

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Question text

FedEx Corp. stock ended the previous year at $96.20 per share. It paid a $0.80 per share dividend last year. It ended last year at $105.80. If you owned 100 shares of FedEx, what was your percent return?
Select one:
a.
10.97%
b.
10.81%
c.
9.98%
d.
9.83%

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