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MD FIN 340 – Which of the following risks confronting

Question NumberQuestion1Which of the following risks confronting ABC Worldwide, Inc. is an example of a unsystematic risk?A possible decline in the value of its holdings of short-term securities due to fluctuation in interest ratesA possible decline in its earnings due to a strike by its employeesA possible decline in the purchasing power of its net income due to inflationsA possible decline in its net worth due to the need to reinvest funds from an investment at a lower rate than was earned initially2According to Markowitz risk can be:Minimized and eliminated without diversificationEliminated without compromizing the overall returnsMinimized by selecting an optimum combination of investmentsAnalyzed exclusively3Which of the following statement(s) concerning beta coefficients is (are) correct?Investors who tend to be risk averse should have a portfolio made up mostly of high-beta-coefficient securities.Beta coefficients of particular securities change over timeBeta coefficients are constructed based on past data(1) only(1) and (3) only(1) and (2) only(2) and (3) onlyIndustry riskSpecific riskUndiversifiable riskResidual riskI, II, IIII, III, IVI, II, IVI, II, III, IV5Which of the following concerning the standard deviation of a stock’s rate of return is (are) correct:The standard deviation of a stock’s rate of return reflects both the systematic and unsystematic risks associated with a stockApproximately 68% of the rates of return on the stock will fall within plus or minus one stand deviation of the average rate of return(1) only(2) onlyBoth (1) and (2)Neither (1) nor (2)6Items that circumvent Fisher’s Perfect World include:No barriers to tradeFree flow of informationThe firm’s indepent decisionmakingSatisfying stockholder wealth maximization criteriaInvestor’s receiving regular dividendsI, II, IIII, II, III IV,II, III, IV, VI, II, III, IV, V7Which of the following concerning systematic and/or unsystematic risk is not correct?A.. Unsystematic risk can be reduced through diversification of a portfolioB. A coefficient of determination of .75 in a portfolio means that 75% of the portfolio risk is unsystematicC. A portfolio’s beta is a measure of its systematic riskD. A fully diversified portfolio has no unsystematic risk ‘8Portfolio risks can be calculated. Which of the following statistical formulas calculate portfolio risk?Capital Asset Pricing Model (CAPM)Correlation coefficientBetaStandard deviation of the variance of returns9Unsystematic risk is diversifiable:TrueFalse10The beta of a security:Is not the same as its systematic risk levelCan be measured by standard deviationIs the slop of the capital market lineIII onlyII onlyI and III onlyNone of the above11Your neighbor tells you that he recently learned that a stock he owns has a beta of -2.0 and a standard deviation of 16.3. If the market declines by 5%, he should anticipate that his stock will:Decline by 10%Rise by 11.3%Rise by 10%There isn’t enough information to perform the calculation12Stocks X and Y produced the following returns in recent years: Year Stock X Stock Y 1 6% 2% 2 8% 0% 3 4% 10% 4 9% 12% 5 11% 14% Avg 7.6% 7.6%Which of the following are the standard deviations of the returns on the two stocks?X = 2.7, Y = 6.2X = 2.7, Y = 4.8X = 3.8, Y = 6.5X = 3.8, & = 5.9

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