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Question;1. Market risk is the chance that a totally unexpected;event will have a significant effect on the value of the firm or a specific;investment.;2. Purchasing-power risk is the chance that changes in interest;rates will adversely affect the value of an investment, most investments;decline in value when the interest rates rise and increase in value when;interest rates fall.;3. If a person's required return does not change when;risk increases, that person is said to be;A) risk-seeking.;B) risk-indifferent.;C) risk-averse.;D) risk-aware.;4. If a;person's required return decreases for an increase in risk, that person is said;to be;A) risk-seeking.;B) risk-indifferent.;C) risk-averse.;D) risk-aware.;5.;is the chance of loss or the variability of returns associated with a given;asset.;A) Return;B) Value;C) Risk;D) Probability;6. The;of an asset is the change in value plus any cash distributions;expressed as a percentage of the initial price or amount invested;A) return;B) value;C) risk;D) probability;7. Risk aversion is the behavior exhibited by managers;who require a (n) ________.;A)increase in return, for a given decrease in;risk;B) increase in return, for a given;increase in risk;C) decrease in return, for a given;increase in risk;D) decrease in return, for a given;decrease in risk;8. Perry;purchased 100 shares of Ferro, Inc. common stock for $25 per share one year;ago. During the year, Ferro, Inc. paid cash dividends of $2 per share. The;stock is currently selling for $30 per share. If Perry sells all of his shares;of Ferro, Inc. today, what rate of return would he realize?;9. Tim;purchased a bounce house one year ago for $6,500. During the year it generated;$4,000 in cash flow. If Time sells the bounce house today, he could receive;$6,100 for it. What would be his rate of return under these conditions?;10. On average, during the past 75 years, the return on;small-company;stocks has exceeded the return on large-company stocks.;11. On average, during the past 75 years, the return on;long-term;government bonds has exceeded the return on long-term corporate bonds.;12. On average, during the past 75 years, the return on;long-term;corporate bonds has exceeded the return on long-term government bonds.;13. Which asset would the risk-averse;financial manager prefer? (See below.);A) Asset A.;B) Asset B.;C) Asset C.;D) Asset D.;14. The expected value and the standard deviation of;returns for asset A is (See below.);Asset;A;A) 12 percent and 4 percent.;B) 12.7 percent and 2.3 percent.;C) 12.7 percent and 4 percent.;D) 12 percent and 2.3 percent.;15. Nico bought 100 shares of Cisco Systems stock;for $24.00 per share on January 1, 2002. He received a dividend of $2.00 per;share at the end of 2002 and $3.00 per share at the end of 2003. At the end of;2004, Nicocollected a dividend of $4.00 per share and sold his stock for;$18.00 per share. What was Nico's realized holding period return?;What was Nico's compound annual rate of return?;A) -12.5%, -4.4%;B) +12.5%, +4.4%;C) -16.7%, -4.4%;D) +16.7%, +4.4%;16. Given the following information about the two;assets A and B, determine which asset is preferred.;17. Assuming the following returns and corresponding;probabilities for asset A, compute its standard deviation and coefficient of;variation.;18. Akai has a portfolio of three assets. Find the;expected rate of return for the portfolio assuming he invests 50 percent of its;money in asset A with 10 percent rate of return, 30 percent in asset B with a;rate of return of 20 percent, and the rest in asset C with 30 percent rate of;return.;19. The creation of a portfolio by combining two assets;having perfectly positively correlated returns cannot reduce the portfolio's;overall risk below the risk of the least risky asset. On the other;hand, a portfolio combining two assets with less than perfectly positive;correlation can reduce total risk to a level below that of either of the;components.;20. The risk of a portfolio containing international;stocks generally contains less nondiversifiable risk than one that;contains only American stocks.;21. The risk of a portfolio containing international;stocks generally does not contain less nondiversifiable risk than one;that contains only American stocks.;22. Diversified investors should be concerned solely;with nondiversifiable risk because it can create a portfolio of;assets that will eliminate all, or virtually all, diversifiable risk.;23. Nondiversifiable risk reflects the;contribution of an asset to the risk, or standard deviation, of the portfolio.;24. Systematic risk is that portion of an asset's risk;that is attributable to firm-specific, random causes.;25. Unsystematic risk can be eliminated through;diversification.


Paper#50913 | Written in 18-Jul-2015

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