Market risk is referred to as: systematic risk. total risk. diversifiable risk. asset specific risk. Standard deviation and beta both measure risk, but they are different in that beta measures both...

Market risk is referred to as:

1. systematic risk.


2. total risk.


3. diversifiable risk.


4. asset specific risk.

Standard deviation and beta both measure risk, but they are different in that

1. beta measures both systematic and unsystematic risk.


2. beta measures only systematic risk while standard deviation is a measure of total risk.


3. beta measures only unsystematic risk while standard deviation is a measure of total risk.


4. beta measures both systematic and unsystematic risk while standard deviation measures only systematic risk.


5. beta measures total risk while standard deviation measures only nonsystematic risk.

Buying common stock is riskier than buying a U.S Treasury bill. state reason in 'other'

true

False

Other:

Which one of the following statements is an example of unsystematic risk?

• The number of vehicles sold by a major manufacturer was less than anticipated.


• GDP was 0.5 percent lower than expected.


• The inflation rate increased by 5 percent.


• The value of the dollar declined against the other major currencies.

A rate of return that plots above the security market line:

• has a negative risk premium.


• has a risk premium appropriate for the amount of risk assumed.


• has too much risk for the amount of the return.


• has too much return for the amount of the risk.

You can reduce un-systematic risk by adding more common stocks to your portfolio

Yes

No

Other:

The risk-free security has a beta equal to ________ , while the market portfolio's beta is equal to _______.

more than one ; one

less than one; one

zero; one

less than zero; more than zero

Combining securities that are perfectly positively correlated helps to reduce the risk of a portfolio

true

False

Other:

Which one of the following will have little if any, effect on a well-diversified portfolio?

• terroristic attack on the U.S.


• explosion at a distribution warehouse


• sudden increase in market interest rates


• increase in exchange rate

Option 5

Security is fairly priced and has an expected rate of return of 0.13. The market expected rate of return is 0.13 and the risk-free rate is 0.04. The beta of the stock is ___ (approx)?

less than 1

1

more than 1