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    Chapter 07 MCQs

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    Elena Wang
    This document contains 10 multiple choice questions about portfolio risk and return concepts including: 1. Firm-specific risk is also referred to as unique risk or diversifiable risk. 2. The variance of a portfolio is the weighted sum of the securities' variances and covariances. 3. Proper diversification can eliminate unique risk but not systematic risk.

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    Chapter 07 MCQs

    Uploaded by

    Elena Wang
    189 views3 pages
    This document contains 10 multiple choice questions about portfolio risk and return concepts including: 1. Firm-specific risk is also referred to as unique risk or diversifiable risk. 2. The variance of a portfolio is the weighted sum of the securities' variances and covariances. 3. Proper diversification can eliminate unique risk but not systematic risk.

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    This document contains 10 multiple choice questions about portfolio risk and return concepts including: 1. Firm-specific risk is also referred to as unique risk or diversifiable risk. 2. The variance of a portfolio is the weighted sum of the securities' variances and covariances. 3. Proper diversification can eliminate unique risk but not systematic risk.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    189 views3 pages

    Chapter 07 MCQs

    Uploaded by

    Elena Wang
    This document contains 10 multiple choice questions about portfolio risk and return concepts including: 1. Firm-specific risk is also referred to as unique risk or diversifiable risk. 2. The variance of a portfolio is the weighted sum of the securities' variances and covariances. 3. Proper diversification can eliminate unique risk but not systematic risk.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Chapter 07 MCQs

    QUESTION 1
    1. The unsystematic risk of a specific security
    results from factors unique to the firm.
    depends on market volatility.
    is likely to be higher in an increasing market.
    cannot be diversified away.
    1 points   
    QUESTION 2
    1. Firm-specific risk is also referred to as
    diversifiable risk or market risk.
    systematic riskor market risk.
    diversifiable risk or unique risk.
    systematic riskor diversifiable risk.
    1 points   
    QUESTION 3
    1. Two securities have a covariance of 0.076. If their respective standard deviations are
    13% and 22%, what is their correlation coefficient?
    0.58
    0.95
    0.38
    0.22
    0.72
    1 points   
    QUESTION 4
    1. Given an optimal risky portfolio with expected return of 12%, standard deviation of
    26%, and a risk free rate of 3%, what is the slope of the best feasible CAL?
    0.36
    0.14
    0.64
    0.35
    0.08
    1 points   
    QUESTION 5
    1. Nondiversifiable risk is also referred to as
    systematic riskor market risk.
    unique riskor market risk.
    systematic riskor unique risk.
    unique riskor firm-specific risk.
    1 points   
    QUESTION 6
    1. The variance of a portfolio of risky securities
    is the weighted sum of the securities' variances and
    covariances.
    is a weighted sum of the securities' variances.
    is the sum of the securities' covariances.
    None of the options are correct.
    is the sum of the securities' variances.
    1 points   
    QUESTION 7
    1. Given an optimal risky portfolio with expected return of 12%, standard deviation of
    26%, and a risk free rate of 5%, what is the slope of the best feasible CAL?
    0.27
    0.33
    0.08
    0.64
    0.36
    1 points   
    QUESTION 8
    1. Which statement about portfolio diversification is correct?
    Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's
    expected return.
    The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60
    individual securities have been purchased.
    None of the statements are correct.
    Proper diversification can eliminate systematic risk.
    Typically, as more securities are added to a portfolio, total risk would be expected to decrease
    at a decreasing rate.
    1 points   
    QUESTION 9
    1. Which of the following statement(s) is(are) false regarding the variance of a portfolio of
    two risky securities?
    1. I) The higher the coefficient of correlation between securities, the greater the
    reduction in the portfolio variance.
    2. II) There is a linear relationship between the securities' coefficient of
    correlation and the portfolio variance.
    3. III) The degree to which the portfolio variance is reduced depends on the
    degree of correlation between securities.
    4.I and II
    III only
    I only
    II only
    I and III
    1 points   
    QUESTION 10
    1. Security X has expected return of 12% and standard deviation of 18%. Security Y has
    expected return of 15% and standard deviation of 26%. If the two securities have a
    correlation coefficient of 0.7, what is their covariance?
    0.018
    0.038
    0.070
    0.033
    0.054

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