UNIT III

1. There is a relationship between risk and return

A. when risk increases, return decreases
B. when risk increases, return increases
C. when risk decreases, return is unchanged
D. when risk decreases, return increases
2. Individuals or companies that prefer low-risk, low-return investments are
A. risk neutral
B. risk-loving
C. risk-averse
D. risk-taking
3. Business risk:
A. is affected by market demand
B. one part of systematic risk
C. is influenced by sales price
D. is due to the variability in operating profits or cash flows
4. Financial risk is not
A. one part of unsystematic risk
B. one part of systematic risk
C. caused by exchange rate fluctuations
D. caused by interest rate fluctuations
5. Which of the following is not a measure of risk?
A. correlation coefficient
B. standard deviation
C. coefficient of variation
D. expected value
6. Choice of correlation coefficient is between
A. 0 to 1
B. 0 to 2
C. Minus 1 to +1
D. Minus 1 to 3
7. A portfolio having two risky securities can be turned risk less if
A) The securities are completely positively correlated
B) If the correlation ranges between zero and one
C) The securities are completely negatively correlated
D) None of the above.

8. A portfolio comprises two securities and the expected return on them is 12%
and 16% respectively. Determine return of portfolio if first security constitutes
 40% of total portfolio.
a) 12.4%
b) 13.4%
c) 14.4%
d) 15.4%
9. This type of risk is avoidable through proper diversification
A. portfolio risk
B. systematic risk
C. unsystematic risk
D. total risk
10. A statistical measure of the degree to which two variables (e.g., securities' returns)
move together
A. coefficient of variation
B. variance
C. covariance
D. certainty equivalent
11. This type of risk is avoidable through proper diversification.
A. portfolio risk
B. systematic risk
C. unsystematic risk
D. total risk
11. An "aggressive" common stock would have a "beta"
A. equal to zero
B. greater than one
C. equal to one.
D. less than one.
12.A measure of "risk per unit of expected return."
A. standard deviation
B. coefficient of variation
C. correlation coefficient
D. beta
13. The risk-free security has a beta equal to , while the market
portfolio's beta is equal to .
A. one; more than one.
B. one; less than one.
C. zero; one.
D. less than zero; more than zero
E.
14. The greater the beta, the of the security involved
A. greater the unavoidable risk
 B. greater the avoidable risk
C. less the unavoidable risk
D. less the avoidable risk

15.A statistical measure of the variability of a distribution around its mean is

referred to as __________.
A. a probability distribution
B. the expected return
C. the standard deviation
D. coefficient of variation
16.The ratio of the standard deviation of a distribution to the mean of that
distribution is referred to as __________.
A. a probability distribution
B. the expected return
C. the standard deviation
D. coefficient of variation

17.The weighted average of possible returns, with the weights being the
probabilities of occurrence is referred to as __________.
A. a probability distribution
B. the expected return
C. the standard deviation
D. coefficient of variation
18.Total portfolio risk is __________.
A. equal to systematic risk plus nondiversifiable risk
B. equal to avoidable risk plus diversifiable risk
C. equal to systematic risk plus unavoidable risk
D. equal to systematic risk plus diversifiable risk
19.__________ is the variability of return on stocks or portfolios not explained by
general market movements. It is avoidable through diversification.
A. Systematic risk
B. Unsystematic risk
C. Standard deviation
D. Coefficient of variation

20.Which of the following items describes an index measure of systematic risk?

A. Beta.
B. Standard deviation.
 C. Coefficent of variation
D. Variance.
21.What is the beta for an average risk security? What is the beta for a Treasury
bill?
A. 1; 0.
B. 0; 1.
C. Greater than 1; 1
D. 1; Greater than 1.
22.Risk in average individual stock can be reduced by placing an individual stock
in
A. low risk portfolio
B. diversified portfolio
C. undiversified portfolio
D. high risk portfolio
23.Correct measure of risk of stock is called
A. alpha
B. beta
C. variance
D. market relevance
24.Risk affects any firm with factors such as war, recessions, inflation and high
interest rates is classified as
A. diversifiable risk
B. market risk
C. stock risk
D. portfolio risk
25.Type of risk in which beta is equal to one is classified as
A. multiple risk stock
B. varied risk stock
C. total risk stock
D. average risk stock
26.Risk which is caused by events such as strikes, unsuccessful marketing
programs and other lawsuits is classified as
A. stock risk
B. portfolio risk
C. diversifiable risk
D. market risk