**Which of the statements below is true?**

**Question options:**

** **

**Investors want to maximize return and maximize risk.**

** **

**Investors want to maximize return and minimize risk. (*This is correct)**

** **

**Investors want to minimize return and maximize risk.**

** **

**Investors want to minimize return and minimize risk.**

** **

**Question 2**

**5 / 5 points**

** **

**The practice of not putting all of your eggs in one basket is an illustration of:**

**Question options:**

** **

**variance.**

** **

**diversification.**

** **

**portion control.**

** **

**expected return.**

** **

**Question 3**

**5 / 5 points**

** **

**The security market line has:**

**Question options:**

** **

**a positive slope.**

** **

**a negative slope.**

** **

**no slope.**

** **

**a beta of 1.0.**

** **

**Question 4**

**5 / 5 points**

** **

**Given an expected market return of 12.0%, a beta of 0.75 for Benson Industries, and a risk-free rate of 4%, what is the expected return for Benson Industries?**

**Question options:**

** **

**13%**

** **

**10%**

** **

**9%**

** **

**4%**

** **

**Question 5**

**5 / 5 points**

** **

**For most stocks, the correlation coefficient with other stocks is:**

**Question options:**

** **

**positive.**

** **

**negative.**

** **

**zero.**

** **

**The distribution of correlation coefficients between stocks is uniform from -1.0 to +1.0.**

** **

**Question 6**

**5 / 5 points**

** **

**Stocks A, B, C, and D have standard deviations, respectively, of 20%, 5%, 10%, and 15%. Which one is the riskiest?**

**Question options:**

** **

**Stock A**

** **

**Stock B**

** **

**Stock C**

** **

**Stock D**

** **

**Question 7**

**5 / 5 points**

** **

**Travis bought a share of stock for $31.50 that paid a dividend of $.85 and sold six months later for $27.65. What was his dollar profit or loss and holding period return?**

**Question options:**

** **

**-$3.00, -9.52%**

** **

**-$3.85, -12.22%**

** **

**-$.85, -2.70%**

** **

**-$3.85, -9.52%**

** **

**Question 8**

**5 / 5 points**

** **

**__________ may be defined as a measure of uncertainty in a set of potential outcomes for an event in which there is a chance for some loss.**

**Question options:**

** **

**Diversification**

** **

**Risk**

** **

**Uncertainty**

** **

**Collaboration**

** **

**Question 9**

**5 / 5 points**

** **

**The __________ is the intercept on the security market line.**

**Question options:**

** **

**prime rate**

** **

**risk-free rate**

** **

**market rate of return**

** **

**beta**

** **

**Question 10**

**5 / 5 points**

** **

**Which of the following investments is considered to be default risk-free?**

**Question options:**

** **

**Currency options**

** **

**AAA-rated corporate bonds**

** **

**Common stock**

** **

**Treasury bills**

** **

**Question 11**

**5 / 5 points**

** **

**Correlation, a standardized measure of how stocks perform relative to one another in different states of the economy, has a range from:**

**Question options:**

** **

**0.0 to +10.0.**

** **

**0.0 to +1.0.**

** **

**-1.0 to +1.0.**

** **

**There is no range; correlation is a calculated number that can take on any value.**

** **

**Question 12**

**5 / 5 points**

** **

**Jarvis bought a share of stock for $15.75 that paid a dividend of $.45 and sold three months later for $18.65. What was his dollar profit or loss and holding period return?**

**Question options:**

** **

**$2.90, 18.41%**

** **

**$3.35, 21.27%**

** **

**-$2.90, -18.41%**

** **

**$.45, 2.86%**

** **

**Question 13**

**5 / 5 points**

** **

**Find the variance for a security that has three one-year returns of 5%, 10%, and 15%.**

**Question options:**

** **

**10%**

** **

**16.67%**

** **

**25%**

** **

**30%**

** **

**Question 14**

**5 / 5 points**

** **

**Find the variance for a security that has three one-year returns of -5%, 15%, and 20%.**

**Question options:**

** **

**175%**

** **

**75%**

** **

**58.33%**

** **

**25%**

** **

**Question 15**

**5 / 5 points**

** **

**Use the following table:**

** **

**States of the Economy**

**Probability of the State**

**3-Month T-Bill**

**Large-Company Stock**

**Small-Company Stock**

** **

**Boom**

**0.3**

**4**

**10**

**30**

** **

**Steady**

**0.5**

**4**

**5**

**20**

** **

**Recession**

**0.2**

**4**

**0**

**10**

**What is the difference between the variances for large- and small-company stocks?**

**Question options:**

** **

**40.25%**

** **

**36.75%**

** **

**27.30%**

** **

**14.90%**

** **

**Question 16**

**5 / 5 points**

** **

**The correlation coefficient, a measurement of the comovement between two variables, has what range?**

**Question options:**

** **

**From 0.0 to +10.0**

** **

**From 0.0 to +1.0**

** **

**From -1.0 to +10.0**

** **

**From =1.0 to -1.0**

** **

**Question 17**

**0 / 5 points**

** **

** **

**Stock**

**A**

**B**

**C**

**D**

** **

**Expected Return**

**5%**

**5%**

**7%**

**6%**

** **

**Standard Deviation**

**10%**

**12%**

**12%**

**11%**

**Which of the following statements is true?**

**Question options:**

** **

**A is a better investment than B.**

** **

**B is a better investment than C.**

** **

**C is a better investment than D.**

** **

**D is a better investment than C.**

** **

**Question 18**

**5 / 5 points**

** **

**Unsystematic risk:**

**Question options:**

** **

**is also known as nondiversifiable risk.**

** **

**can be diversified away.**

** **

**is system-wide risk.**

** **

**is equal to 2 times the systematic risk.**

** **

**Question 19**

**5 / 5 points**

** **

**Which of the following statements is true about variance?**

**Question options:**

** **

**Variance describes how spread out a set of numbers or values are around its mean or average.**

** **

**Variance is essentially the variability from the average.**

** **

**The larger the variance, the greater the dispersion.**

** **

**All of the above statements are true.**

** **

**Question 20**

**5 / 5 points**

** **

**Assume the following information about the market and JumpMasters’ stock. JumpMasters’ beta = 1.50, the risk-free rate is 3.5%, the market risk premium is 10%. Using the SML, what is the expected return for JumpMasters’ stock?**

**Question options:**

** **

**7.5%**

** **

**13.5%**

** **

**18.5%**

** **

**27%**