17 Questions
| Attempts: 14878

Questions and Answers

- 1.The return may be thought of as _________________.
- A.
The growth in the value of an investment.

- B.
The risk associated with an investment.

- C.
Obtained only if the company pays dividends; without dividends, return is 0.

- D.
The process of returning the stock to the corporation that issued it.

- 2.Dividends _____ the rate of return?
- A.
Decrease

- B.
Increase

- C.
Have no effect on

- D.
Increase the risk of

- 3.A holding period _____________________.
- A.
Is always a year

- B.
Is always a month

- C.
Is always a quarter

- D.
Can be any length of time

- 4.What does the standard deviation measure?
- A.
The gain on the investment.

- B.
The holding period

- C.
Risk

- D.
The amount of dividend.

- 5.Think carefully about this one. Some investors will accept high-risk investments and some investors prefer low-risk investments. What term best describes that situation?
- A.
Risk aversion

- B.
Risk return tradeoff

- C.
Risk tolerance

- D.
Rate of return

- 6.An example of a specific risk:
- A.
A CEO is fired

- B.
A recession

- C.
A war

- D.
A presidential election

- 7.In the financial markets, what is the DOW used for?
- A.
It is a measure of specific risk

- B.
It is a measure of market risk

- C.
It measures stock price levels for the entire market

- D.
It measures the level of dividends paid by various companies

- 8.The DOW sample of stocks is considered a valid representation of the market because _____________________.
- A.
It is designed to include companies for major industries

- B.
It represents large amount (25%) of the value of all stocks traded

- C.
Both a and b

- D.
Neither a nor b

- 9.How many stocks are included in the DOW?
- A.
20

- B.
30

- C.
100

- D.
500

- 10.Which type of risk does diversification help to manage?
- A.
Specific

- B.
Market

- C.
Both a and b

- D.
Neither a nor b

- 11.It is generally thought that an investor is fully diversified if she owns __ stocks.
- A.
1

- B.
5

- C.
20

- D.
30

- 12.What risk does the standard deviation measure?
- A.
Specific

- B.
Market

- C.
Total

- D.
It doesn't - it measures return, not risk

- 13.Investors profit from investments in stock by ______________.
- A.
Receiving dividends

- B.
Price growth

- C.
Both a and b

- D.
Neither a nor b

- 14.A rational investor will invest in a risky stock if ________________.
- A.
They think they will earn a large return on the investment.

- B.
They have a high risk tolerance.

- C.
Both a and b

- D.
Neither a nor b

- 15.Compared to the DOW, the S&P 500 is ________________________.
- A.
Is generally thought to represent a more valid sample

- B.
Includes small stocks

- C.
Includes less stocks than the DOW

- D.
Includes only foreign company stocks

- 16.Which stock would an investor with a high risk tolerance prefer?
- A.
Stock A has a mean return of 7% and a standard deviation of 2%.

- B.
Stock B has a mean return of 7% and a standard deviation of 10%.

- C.
Stock C has a mean return of 12% and a standard deviation of 10%.

- D.
Stock D has a mean return of 12% and a standard deviation of 20%.

- 17.The mean of 50 monthly returns return for a stock is 13%. The standard deviation is 5%. We can, therefore, be 68% certain that the return for any particular month is at least
- A.
13%

- B.
5%

- C.
18%

- D.
8%

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