FINC 306 Exam 3 UTK QUESTIONS AND VERIFIED ANSWERS

FINC 306 Exam 3 UTK QUESTIONS AND
VERIFIED ANSWERS


14.25% - CORRECT - ANSWERS Stock A has an expected return of 12%, and Stock B has an
expected return of 15%. If you invest $10,000 in Stock A and $30,000 in Stock B, what is the
expected return for your portfolio?



13.5%




12%




15%




14.25%



between 0 and 1 - CORRECT - ANSWERS What is the average correlation between a
randomly selected pair of U.S. stocks?




between 0 and 1

1

0

-1




False - CORRECT - ANSWERS Think about a portfolio where $100,000 is spread equally
across 10 stocks. The portfolio variance is the average of the variances of the 10 stocks.

True

, False




between -1 and 0 - CORRECT - ANSWERS Which correlation will result in the greatest
diversification benefit?

between 0 and 1

0

between -1 and 0




market risk - CORRECT - ANSWERS Which is another name for systematic risk?

idiosyncratic risk

firm-specific risk

diversifiable risk

market risk



idiosyncratic risk - CORRECT - ANSWERS Which is another name for diversifiable risk?

systematic risk

idiosyncratic risk

market risk




systematic risk - CORRECT - ANSWERS According to the CAPM, which type of risk
translates to a higher expected return?

neither systematic nor diversifiable risk

diversifiable risk

both systematic and diversifiable risk

systematic risk




beta - CORRECT - ANSWERS What is the CAPM's measure of a stock's systematic risk?