Test 1
Finance 3715
Test 3 Practice Test
1. Which of the following will be constant for all securities if the market is efficient and securities are priced fairly?
a. Reward-to-risk ratio
b. Variance
c. Beta
d. Standard deviation
e. Risk premium
2. Which one of the following statements best defines the efficient market hypothesis?
a. Profits are removed as a market incentive when markets become efficient
b. Mispriced securities are common in efficient markets
c. All securities in an efficient market are zero net present value investments
d. Efficient markets limit competition
e. Security prices in efficient markets remain steady as new information becomes available
3. To convince investors to accept greater volatility, you must:
a. Decrease the risk premium
b. Decrease the risk-free rate
c. Increase the risk-free rate
d. Decrease the real return
e. Increase the risk premium
4. You have a portfolio consisting solely of stock A and stock B. The portfolio has an expected return of 9.8 percent. Stock A has an expected return of 11.4 percent while stock B is expected to return 6.4 percent. What is the portfolio weight of stock A?
a. 74 percent
b. 81 percent
c. 59 percent
d. 87 percent
e. 68 percent
5. The market rate of return is 11 percent and the risk-free rate of return is 3 percent. Lexant stock has 3 percent less systematic risk than the market and has an actual return of 12 percent. This stock:
a. Is underprices
b. Is correctly priced
c. Will plot on the security market line
d. Will plot below the security market line
e. Will plot to the right of the overall market on the security market line graph
6. The common stock of Air United Inc., had annual return of 15.6 percent, 2.4 percent, -11.8 percent, and 32.9 percent over the last four years. What is the standard deviation of these returns?
a. 14.14 percent
b. 16.50 percent
c. 13.29 percent
d. 19.05 percent
e. 17.78 percent
7. Jerilu Markets has a beta of 1.09. The risk-free rate of
Test 3 Practice Test
1. Which of the following will be constant for all securities if the market is efficient and securities are priced fairly?
a. Reward-to-risk ratio
b. Variance
c. Beta
d. Standard deviation
e. Risk premium
2. Which one of the following statements best defines the efficient market hypothesis?
a. Profits are removed as a market incentive when markets become efficient
b. Mispriced securities are common in efficient markets
c. All securities in an efficient market are zero net present value investments
d. Efficient markets limit competition
e. Security prices in efficient markets remain steady as new information becomes available
3. To convince investors to accept greater volatility, you must:
a. Decrease the risk premium
b. Decrease the risk-free rate
c. Increase the risk-free rate
d. Decrease the real return
e. Increase the risk premium
4. You have a portfolio consisting solely of stock A and stock B. The portfolio has an expected return of 9.8 percent. Stock A has an expected return of 11.4 percent while stock B is expected to return 6.4 percent. What is the portfolio weight of stock A?
a. 74 percent
b. 81 percent
c. 59 percent
d. 87 percent
e. 68 percent
5. The market rate of return is 11 percent and the risk-free rate of return is 3 percent. Lexant stock has 3 percent less systematic risk than the market and has an actual return of 12 percent. This stock:
a. Is underprices
b. Is correctly priced
c. Will plot on the security market line
d. Will plot below the security market line
e. Will plot to the right of the overall market on the security market line graph
6. The common stock of Air United Inc., had annual return of 15.6 percent, 2.4 percent, -11.8 percent, and 32.9 percent over the last four years. What is the standard deviation of these returns?
a. 14.14 percent
b. 16.50 percent
c. 13.29 percent
d. 19.05 percent
e. 17.78 percent
7. Jerilu Markets has a beta of 1.09. The risk-free rate of