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Portfolio Theory and Asset Pricing Models
Beta reflects stock risk for investors which is usually
A. individual
B. collective
C. weighted
D. linear
An unsystematic risk which can be eliminated but market risk is the
A. aggregate risk
B. remaining risk
C. effective risk
D. ineffective risk
If book value is greater than market value comparison with investors for future
stock are considered as
A. pessimistic
B. optimistic
C. experienced
D. inexperienced
Difference between actual return on stock and predicted return is considered as
A. probability error
B. actual error
C. prediction error
D. random error
Stocks which has lower book for market ratio are considered as
A. optimistic
B. more risky
C. less risky
D. pessimistic
Future beta is needed to calculate in most situations is classified as
A. historical betas
B. adjusted betas
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C. standard betas
D. varied betas
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An efficient set of portfolios represented through graph is classified as an
A. attained frontier
B. efficient frontier
C. inefficient frontier
D. unattained frontier
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A high portfolio return is subtracted from low portfolio return to calculate
A. HML portfolio
B. R portfolio
C. subtracted portfolio
If market value is greater than book value then investors for future stock are
considered as
A. experienced
B. inexperienced
C. pessimistic
D. optimistic
According to capital asset pricing model assumptions, investors will borrow unlimited
amount of capital at any given
A. identical and fixed returns

B. risk free rate of interest
C. fixed rate of interest
D. risk free expected return
In capital market line, risk of efficient portfolio is measured by its
A. standard deviation
B. variance
C. aggregate risk
D. ineffective risk
According to capital asset pricing model assumptions, quantities of all assets are
A. given and fixed

B. not given and fixed
C. not given and variable
D. given and variable
Stocks which has high book for market ratio are considered as
A. more risky
B. less risky
C. pessimistic
D. optimistic
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According to capital asset pricing model assumptions, variances, expected returns and
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covariance of all assets are
A. identical
B. not identical
C. fixed
D. variable
Sum of market risk and diversifiable risk are classified as total risk which is equivalent
to
A. Sharpe's alpha
B. standard alpha's
C. alpha's variance
D. variance
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Betas tend to move towards 1.0 with passage of time are classified as
A. standard betas
B. varied betas
C. historical betas
D. adjusted betas
Stock issued by company have higher rate of return because of
A. low market to book ratio

B. high book to market ratio
C. high market to book ratio
D. low book to market ratio
Type of relationship exists between an expected return and risk of portfolio is

classified as
A. non-linear
B. linear
C. fixed and aggregate
D. non-fixed and non-aggregate
A theory which states that assets are traded at price equal to its intrinsic value is
classified as
A. efficient money hypothesis

B. efficient market hypothesis
C. inefficient market hypothesis
D. inefficient money hypothesis
In capital asset pricing model, characteristic line is classified as
A. regression line
B. probability line
C. scattered points
D. weighted line
All assets are perfectly divisible and liquid in
A. tax free pricing model

B. cost free pricing model
C. capital asset pricing model
D. stock pricing model
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Stock issued by company have lower rate of return because of

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A. high market to book ratio

B. low book to market ratio
C. low market to book ratio
D. high book to market ratio
Positive minimum risk portfolio of any security shows that market security sold
A. equal to original price

B. equal to sum of stocks
C. less than original price
D. greater than original price
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In capital asset pricing model, assumptions must be followed including
A. no taxes
B. no transaction costs
C. fixed quantities of assets
D. all of above
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Risk, Return, and Capital Asset Pricing Model
Two alternative expected returns are compared with help of
A. coefficient of variation
B. coefficient of deviation
C. coefficient of standard
D. coefficient of return
An analysis of decision making of investors and managers is classified as
A. riskier finance
B. behavioral finance
C. premium finance
D. buying finance
Yield on bond is 7% and market required return is 14% then market risk premium
would be
A. 2%
B. 21%
C. 0.50%
D. 7%
An expected rate of return is denoted by
A. e-bar
B. r-bar
C. r-hat
D. e-hat
An inflation free rate of return and inflation premium is two components of
A. quoted rate
B. unquoted rate
C. steeper rate
D. portfolio rate
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
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D. portfolio risk
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Past realized rate of return in period t is denoted by
A. t bar r
B. t hat r
C. r hat t
D. r bar t
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An amount invested is $1500 and an amount received is $2000 then dollar return
would be
A. $500
B. −$500
C. $3,500
D. −$3500
External factors such as expiration of basic patents and industry competition effect
A. patents premium
B. competition premium
C. company's beta
D. expiry premium
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
A portfolio consists of all stocks in a market is classified as
A. market portfolio
B. return portfolio
C. correlated portfolio
D. diversified portfolio
Beta coefficient is used to measure market risk which is an index of
A. coefficient risk volatility

B. market risk volatility
C. stock market volatility
D. portfolio market portfolio
Standard deviation of tighter probability distribution is
A. long-termed
B. short-termed
C. riskier
D. smaller
Risk which is caused by events such as strikes, unsuccessful marketing programs and
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other lawsuits is classified as

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A. stock risk
B. portfolio risk
C. diversifiable risk
D. market risk
Required return is 11% and premium for risk is 8% then risk free return will be
A. 3%
B. 19%
C. 0.72%
D. 1.38%
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Range of probability distribution with 99.74% lies within
A. ( + 3σ and -3σ)
B. ( + 4σ and -4σ)
C. ( + 1σ and -1σ)
D. ( + 2σ and -2σ)
In capital asset pricing model, stock with high standard deviation tend to have
A. low variation
B. low beta
C. high beta
D. high variation
Standard deviation is 18% and expected return is 15.5% then coefficient of variation
would be
A. 0.86%
B. 1.16%
C. 2.50%
D. −2.5%
Standard deviation is divided by expected rate of return is used to calculate
A. coefficient of variation
B. coefficient of deviation
C. coefficient of standard
D. coefficient of return
Chance of happening any unfavorable event in near future is classified as
A. chance
B. event happening
C. probability
D. risk
A tighter probability distribution shows the
A. higher risk
B. lower risk
C. expected risk
D. peaked risk
Stock which has higher correlation with market tend to have

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A. high beta, less risky

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B. low beta, more risky

C. high beta, more risky
D. low beta, less risky
Coefficient of variation is used to identify an effect of
A. risk
B. return
C. deviation
D. Both A and B
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Coefficient of beta is used to measure stock volatility
A. coefficient of market
B. relative to market
C. irrelative to market
D. same with market
Probability distribution is classified as normal if expected return lies between
A. ( + 1 and -1)
B. ( + 2 and -2)
C. ( + 3 and -3)
D. ( + 4 and -4)
Tendency of measuring correlation of two variables is classified as
A. tendency coefficient
B. variable coefficient
C. correlation coefficient
D. double coefficient
Relationship between risk and required return is classified as
A. security market line

B. required return line
C. market risk line
D. riskier return line
Tendency of moving together of two variables is classified as
E. correlation
F. move tendency
G. variables tendency
H. double tendency
Term structure premium, an inflation of bond and bond default premium are
included in
A. risk factors
B. premium factors
C. bond buying factors
D. multi model
Mostly in financials, risk of portfolio is smaller than that of asset's

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A. mean
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B. weighted average
C. mean correlation
D. negative correlation
Chance of occurrence of any event is classified as
A. probability
B. risk
C. chance
D. event happening
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According to market risk premium, an amount of risk premium depends upon

investor
A. risk taking
B. risk aversion
C. market aversion
D. portfolio aversion
In an individual stock, relevant risk is classified as
A. alpha coefficient
B. beta coefficient
C. stand-alone coefficient
D. relevant coefficient
Portfolio which consists of perfectly positive correlated assets having no effect of
A. negativity
B. positivity
C. correlation
D. diversification
Weighted average of probabilities is classified as
A. average rate of return

B. expected rate of return
C. past rate of return
D. weighted rate of return
Correct measure of risk of stock is called
A. alpha
B. beta
C. variance
D. market relevance
Standard deviation is 18% and coefficient of variation is 1.5% an expected rate of

return will be
A. 27%
B. 12%
C. 19.50%
D. none of above
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Stocks in market portfolio are graphically represented with

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A. dashed line
B. straight line
C. market line
D. risk line
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Time Value of Money
An annual estimated cost of assets uses up every year is included
A. depreciation and amortization

B. net sales
C. net profit
D. net income
Proceeds of company shares of sold stock is recorded in
A. preferred stock account

B. common stock account
C. due stock account
D. preceded stock account
Statement of cash flows is included
A. operating activities
B. investing activities
C. financing activities
D. all of above
In calculation of net cash flow, depreciation and amortization are treated as
A. current liabilities
B. income expenses
C. non-cash revenues
D. non-cash charges
Payments if it is made at end of each period such as an end of year is classified as
A. ordinary annuity
B. deferred annuity
C. annuity due
D. Both A and B
In time value of money, nominal rate is
A. not shown on timeline

B. shown on timeline
C. multiplied on timeline
D. divided on timeline
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Stockholders that do not get benefits even if company's earnings grow are classified
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Portfolio Theory and Asset Pricing Models

Beta reflects stock risk for investors which is usually

An unsystematic risk which can be eliminated but market risk is the

Difference between actual return on stock and predicted return is considered as

Future beta is needed to calculate in most situations is classified as

An efficient set of portfolios represented through graph is classified as an

A high portfolio return is subtracted from low portfolio return to calculate

A. identical and fixed returns

In capital market line, risk of efficient portfolio is measured by its

A. given and fixed

covariance of all assets are

Stock issued by company have higher rate of return because of

A. low market to book ratio

Type of relationship exists between an expected return and risk of portfolio is

A. efficient money hypothesis

In capital asset pricing model, characteristic line is classified as

All assets are perfectly divisible and liquid in

A. tax free pricing model

Stock issued by company have lower rate of return because of

A. high market to book ratio

A. equal to original price

In capital asset pricing model, assumptions must be followed including

Risk, Return, and Capital Asset Pricing Model

Two alternative expected returns are compared with help of

An analysis of decision making of investors and managers is classified as

An expected rate of return is denoted by

An inflation free rate of return and inflation premium is two components of

Past realized rate of return in period t is denoted by

Type of risk in which beta is equal to one is classified as

A. multiple risk stock

A portfolio consists of all stocks in a market is classified as

Beta coefficient is used to measure market risk which is an index of

A. coefficient risk volatility

Standard deviation of tighter probability distribution is

other lawsuits is classified as

Range of probability distribution with 99.74% lies within

Standard deviation is divided by expected rate of return is used to calculate

Chance of happening any unfavorable event in near future is classified as

A tighter probability distribution shows the

Stock which has higher correlation with market tend to have

A. high beta, less risky

B. low beta, more risky

Coefficient of variation is used to identify an effect of

Coefficient of beta is used to measure stock volatility

Probability distribution is classified as normal if expected return lies between

Tendency of measuring correlation of two variables is classified as

Relationship between risk and required return is classified as

A. security market line

Tendency of moving together of two variables is classified as

Mostly in financials, risk of portfolio is smaller than that of asset's

Chance of occurrence of any event is classified as

According to market risk premium, an amount of risk premium depends upon

In an individual stock, relevant risk is classified as

Portfolio which consists of perfectly positive correlated assets having no effect of

Weighted average of probabilities is classified as

A. average rate of return

Correct measure of risk of stock is called

Standard deviation is 18% and coefficient of variation is 1.5% an expected rate of