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BUSN 379 Week 5 Quiz

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BUSN 379 Week 5 Quiz

Question :

(TCO 8) Which one of the following is a correct definition of an Ibbotson and Sinquefield investment category as used to report historical returns in your textbook?

	Student Answer:		U.S. Treasury bills: 1-year debt securities issued by the U.S. Department of the Treasury
			Small-company stocks: Stocks of the smallest 20 percent of the firms listed on the NYSE
			Large-company stocks: Stocks of the largest 10 percent of the firms listed on the NYSE
			Long-term U.S. government bonds: Bonds issued by the U.S. government with a 30-year maturity

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Question :

(TCO 8) If the financial markets are efficient, then:

	Student Answer:		stock prices should never change.
			stock prices should only respond to unexpected news and events.
			stock prices should increase or decrease slowly as new events are analyzed and the information is absorbed by the markets.
			stock prices will only change when an event actually occurs, not at the time the event is anticipated.

Question :

(TCO 8) Which of the following statements is true regarding systematic risk? Select all that apply:

	Student Answer:		is diversifiable
			is the total risk associated with surprise events
			it is not project or firm specific
			is measured by beta

Question :

(TCO 8) Assume a project that has the following returns for years 1 to 5: 15%, 4%, -13%, 34%, and 17%. What is the approximate standard deviation of this investment?

	Student Answer:		0.03013
			0.1542
			17%
			20%

Question :

(TCO 8) Assume you are considering investing in two stocks, A & B. Stock A has an expected return of 16% and Stock B has an expected return of 9.5%. Your goal is to create a two-security portfolio that will have an expected return of 12%. If you have $250,000 to invest today, which of the following statements is true?

	Student Answer:		You would invest more in Stock A than you would invest in Stock B
			You would invest approximately $96,000 in Stock A and $154,000 in Stock B
			You would invest the same amount in each stock
			Regardless of your investment choices, you cannot obtain a return of 12%.

Question :

(TCO 8) For this exercise, use the information provided for Problem 30 of Chapter 11 (page 375 of your textbook). Assume that the probability of the state of the economy has changed as follows:

The probability of a recession has increased to 30% and the probability for a normal state of economy is now 40%. The market risk premium has increased by 1% as well. What is the standard deviation of Stock I and II respectively?

	Student Answer:		12 and 20%
			12.5 and 23%
			1.25 and 2.326%
			Cannot be determined with the information given

Question :

(TCO 8) For this exercise, use the information provided for Problem 30 of Chapter 11 (page 375 of your textbook). Assume that the probability of the state of the economy has changed as follows:

The probability of a recession has increased to 30% and the probability for a normal state of economy is now 40%. The market risk premium has increased by 1% as well. Which statement is true? Select all that apply:

	Student Answer:		Stock II has more risk than Stock I
			Stock II has less systematic risk than Stock I
			Stock I has a higher risk premium than Stock II
			Stock I has a greater expected return than Stock II

Question :

(TCO 8) Which statements are true regarding risk? Select all that apply:

	Student Answer:		The expected return is usually not the same as the actual return
			A key to assessing risk is determining how much risk an investment adds to a portfolio
			Some risks cannot be decreased or mitigated by the financial manager.
			The higher the risk, the higher the return investors require for the investment

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BUSN 379 Week 5 Quiz

BUSN 379 Week 5 Quiz

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