Chapter 11 - Risk and Return 11-1 Chapter 11 Risk and Retu rn Mu ltiple Choice Qu estions 1. Mary owns a risky stock and anticipates earning 16.5 percent on her investment in that stock. Which one of the following best describes the 16.5 percent rate? A. Expected return B. Real return C. Market rate D. Systematic return E. Risk premium 2. Which one of the following best describes a portfolio? A. Risky security B. Security equally as risky as the overall market C. New issue of stock D. Group of assets held by an investor E. Investment in a risk-free security 3. Stock A comprises 28 percent of Susan's portfolio. Which one of the following terms applies to the 28 percent? A. Portfolio variance B. Portfolio standard deviation C. Portfolio weight D. Portfolio expected return E. Portfolio beta 4. Which one of the following describes systemic risk? A. Risk that affects a large number of assets B. An individual security's total risk C. Diversifiable risk D. Asset specific risk E. Risk unique to a firm's management Chapter 11 - Risk and Return 11-2 5. Which of the following terms can be used to describe unsystematic risk? I. asset-specific risk II. diversifiable risk III. market risk IV. unique risk A. I and IV only B. II and III only C. I, II, and IV only D. II, III, and IV only E. I, II, III, and IV 6. Which one of the following terms best refers to the practice of investing in a variety of diverse assets as a means of reducing risk? A. Systematic B. Unsystematic C. Diversification D. Security market line E. Capital asset pricing model 7. The systematic risk principle states that the expected return on a risky asset depends only on which one of the following? A. Unique risk...
