©BRAINBARTER 2024/2025
Investments Final Chapter 12 Exam
Questions With Verified Answers.
1. Which one of the following is the type of risk that affects a large number of assets? -
answer✔B. systematic
2. Which one of the following is the type of risk that only affects either a single firm or just a
small number of firms? - answer✔D. unsystematic
3. According to the systematic risk principle, the reward for bearing risk is based on which one
of the following types of risk? - answer✔D. systematic
4. Which one of the following measures systematic risk? - answer✔A. beta
5. The security market line depicts the graphical relationship between which two of the
following?
I. expected return
II. surprise return
III. systematic risk
IV. unsystematic risk - answer✔A. I and III
6. Which one of the following is expressed as "E(RM) - Rf"? - answer✔A. market risk premium
7. Which one of the following is the theory which states that the value of a security is dependent
upon the pure time value of money, the reward for bearing systematic risk, and the amount of
systematic risk? - answer✔B. capital asset pricing model
8. Which one of the following terms is the measure of the tendency of two things to move or
vary together? - answer✔E. covariance
9. Retail Specialties just announced that its Chief Operating Officer is retiring at the end of this
month. This announcement will cause the firm's stock price to: - answer✔E. either increase,
decrease, or remain constant.
, ©BRAINBARTER 2024/2025
10. Which one of the following is the best example of a risk associated with stock ownership? -
answer✔C. One of the firm's patent applications was unexpectedly rejected.
11. Which one of the following announcements is most apt to cause the price of a firm's stock to
increase? - answer✔B. An unpopular CEO unexpectedly announced he is resigning effective
immediately.
12. Which one of the following terms is another name for systematic risk? - answer✔C. market
risk
13. Which one of the following is the best example of systematic risk? - answer✔C. gas prices
rise sharply
14. Which one of the following statements applies to unsystematic risk? - answer✔A. It can be
eliminated through portfolio diversification.
15. Which one of the following is the best example of unsystematic risk? - answer✔A. decrease
in company sales
16. Which one of the following qualifies as diversifiable risk? - answer✔E. the unsystematic
portion of an unexpected return
17. Which one of the following betas represents the greatest level of systematic risk? -
answer✔E. 1.27
18. A stock with which one of the following betas has an expected return that most resembles the
overall market expected rate of return? - answer✔C. .99
19. What is the beta of a risk-free security? - answer✔A. .00
Which has the highest expected risk premium? - answer✔Highest Beta
________ has the greatest level of total risk and _________ has the highest risk premium -
answer✔Combination of high beta and high standard deviation; highest beta
22. A portfolio beta is computed as which one of the following? - answer✔A. weighted average
23. You own a portfolio which is invested equally in two stocks and a risk-free security. The
stock betas are .89 for Stock A and 1.26 for Stock B. Which one of the following will increase
the portfolio beta, all else constant? - answer✔D. increasing the weight of Stock A and
decreasing the weight of the risk-free security
24. A portfolio of securities has a beta of 1.14. Given this, you know that: - answer✔E. the
expected return on the portfolio is greater than the expected market return.
Investments Final Chapter 12 Exam
Questions With Verified Answers.
1. Which one of the following is the type of risk that affects a large number of assets? -
answer✔B. systematic
2. Which one of the following is the type of risk that only affects either a single firm or just a
small number of firms? - answer✔D. unsystematic
3. According to the systematic risk principle, the reward for bearing risk is based on which one
of the following types of risk? - answer✔D. systematic
4. Which one of the following measures systematic risk? - answer✔A. beta
5. The security market line depicts the graphical relationship between which two of the
following?
I. expected return
II. surprise return
III. systematic risk
IV. unsystematic risk - answer✔A. I and III
6. Which one of the following is expressed as "E(RM) - Rf"? - answer✔A. market risk premium
7. Which one of the following is the theory which states that the value of a security is dependent
upon the pure time value of money, the reward for bearing systematic risk, and the amount of
systematic risk? - answer✔B. capital asset pricing model
8. Which one of the following terms is the measure of the tendency of two things to move or
vary together? - answer✔E. covariance
9. Retail Specialties just announced that its Chief Operating Officer is retiring at the end of this
month. This announcement will cause the firm's stock price to: - answer✔E. either increase,
decrease, or remain constant.
, ©BRAINBARTER 2024/2025
10. Which one of the following is the best example of a risk associated with stock ownership? -
answer✔C. One of the firm's patent applications was unexpectedly rejected.
11. Which one of the following announcements is most apt to cause the price of a firm's stock to
increase? - answer✔B. An unpopular CEO unexpectedly announced he is resigning effective
immediately.
12. Which one of the following terms is another name for systematic risk? - answer✔C. market
risk
13. Which one of the following is the best example of systematic risk? - answer✔C. gas prices
rise sharply
14. Which one of the following statements applies to unsystematic risk? - answer✔A. It can be
eliminated through portfolio diversification.
15. Which one of the following is the best example of unsystematic risk? - answer✔A. decrease
in company sales
16. Which one of the following qualifies as diversifiable risk? - answer✔E. the unsystematic
portion of an unexpected return
17. Which one of the following betas represents the greatest level of systematic risk? -
answer✔E. 1.27
18. A stock with which one of the following betas has an expected return that most resembles the
overall market expected rate of return? - answer✔C. .99
19. What is the beta of a risk-free security? - answer✔A. .00
Which has the highest expected risk premium? - answer✔Highest Beta
________ has the greatest level of total risk and _________ has the highest risk premium -
answer✔Combination of high beta and high standard deviation; highest beta
22. A portfolio beta is computed as which one of the following? - answer✔A. weighted average
23. You own a portfolio which is invested equally in two stocks and a risk-free security. The
stock betas are .89 for Stock A and 1.26 for Stock B. Which one of the following will increase
the portfolio beta, all else constant? - answer✔D. increasing the weight of Stock A and
decreasing the weight of the risk-free security
24. A portfolio of securities has a beta of 1.14. Given this, you know that: - answer✔E. the
expected return on the portfolio is greater than the expected market return.
