CFIN ACTUAL TEST QUESTIONS AND
SOLUTIONS COMPREHENSIVE REVIEW
PACKAGE
●● The market risk premium is the additional return that investors
require to invest in ________ rather than _________.
Answer: The market portfolio; treasury bills
●● The difference between the market portfolio return and the risk free
rate is called the ______
Answer: Market risk premium
●● For well-diversified investors, the only relevant measure of
investment risk is their __________
Answer: Portfolio beta
●● If you construct an investment portfolio by investing 75% of your
funds in the market portfolio (r = 14%) and 25% of your funds in
Treasury bills (r = 3%), what is the expected return of your portfolio
according to the CAPM?
Answer: 11.25%
,●● A beta of 0 indicates that a security is _________ by what happens in
the market
Answer: Unaffected
●● The annual market risk premium averaged over the past century is
approximately ______
Answer: 7.6%
●● The return on U.S. Treasury bills is often referred to as the
_________
Answer: Risk-free rate
●● The CAPM assumes that the stock market is composed of _______
investors
Answer: Well-diversified
●● According to the CAPM, what is the expected return on a stock if its
beta is equal to zero?
Answer: The risk-free rate
●● If you construct an investment portfolio by investing 75% of your
funds in the market portfolio and 25% of your funds in Treasury bills,
what is the beta of your portfolio?
Answer: .75
, ●● The CAPM predicts that the difference in return between stock A and
stock B should be due only to the difference in the _______ of the two
stocks.
Answer: Beta
●● The minimum acceptable expected rate of return for a project is
called the ________________
Answer: Project cost of capital
●● The opportunity cost of capital for investment in the firm as a whole
is called the:
Answer: Company cost of capital
●● For projects of higher than average risk, firms may use a discount
rate that is _________ than the company cost of capital.
Answer: Greater than
●● Value stocks here are defined as those with ______ ratios of book
value to market value; growth stocks are those with _______ ratios of
book to market value.
Answer: High; low
●● The risk of undertaking a project can be described by its __________
SOLUTIONS COMPREHENSIVE REVIEW
PACKAGE
●● The market risk premium is the additional return that investors
require to invest in ________ rather than _________.
Answer: The market portfolio; treasury bills
●● The difference between the market portfolio return and the risk free
rate is called the ______
Answer: Market risk premium
●● For well-diversified investors, the only relevant measure of
investment risk is their __________
Answer: Portfolio beta
●● If you construct an investment portfolio by investing 75% of your
funds in the market portfolio (r = 14%) and 25% of your funds in
Treasury bills (r = 3%), what is the expected return of your portfolio
according to the CAPM?
Answer: 11.25%
,●● A beta of 0 indicates that a security is _________ by what happens in
the market
Answer: Unaffected
●● The annual market risk premium averaged over the past century is
approximately ______
Answer: 7.6%
●● The return on U.S. Treasury bills is often referred to as the
_________
Answer: Risk-free rate
●● The CAPM assumes that the stock market is composed of _______
investors
Answer: Well-diversified
●● According to the CAPM, what is the expected return on a stock if its
beta is equal to zero?
Answer: The risk-free rate
●● If you construct an investment portfolio by investing 75% of your
funds in the market portfolio and 25% of your funds in Treasury bills,
what is the beta of your portfolio?
Answer: .75
, ●● The CAPM predicts that the difference in return between stock A and
stock B should be due only to the difference in the _______ of the two
stocks.
Answer: Beta
●● The minimum acceptable expected rate of return for a project is
called the ________________
Answer: Project cost of capital
●● The opportunity cost of capital for investment in the firm as a whole
is called the:
Answer: Company cost of capital
●● For projects of higher than average risk, firms may use a discount
rate that is _________ than the company cost of capital.
Answer: Greater than
●● Value stocks here are defined as those with ______ ratios of book
value to market value; growth stocks are those with _______ ratios of
book to market value.
Answer: High; low
●● The risk of undertaking a project can be described by its __________
