INVESTMENTS FINAL CHAPTER 12
QUESTIONS WITH CORRECT DETAILED
ANSWERS
1. Which one of the following is the type of risk that affects a large number of assets? - B. systematic
n
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? - 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? - D. systematic
4. Which one of the following measures systematic risk? - 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 - A. I and III
6. Which one of the following is expressed as "E(RM) - Rf"? - 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?
- 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? - 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: - E. either increase, decrease, or remain constant.
10. Which one of the following is the best example of a risk associated with stock ownership? - 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? - B. An unpopular CEO unexpectedly announced he is resigning effective immediately.
12. Which one of the following terms is another name for systematic risk? - C. market risk
13. Which one of the following is the best example of systematic risk? - C. gas prices rise sharply
QUESTIONS WITH CORRECT DETAILED
ANSWERS
1. Which one of the following is the type of risk that affects a large number of assets? - B. systematic
n
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? - 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? - D. systematic
4. Which one of the following measures systematic risk? - 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 - A. I and III
6. Which one of the following is expressed as "E(RM) - Rf"? - 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?
- 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? - 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: - E. either increase, decrease, or remain constant.
10. Which one of the following is the best example of a risk associated with stock ownership? - 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? - B. An unpopular CEO unexpectedly announced he is resigning effective immediately.
12. Which one of the following terms is another name for systematic risk? - C. market risk
13. Which one of the following is the best example of systematic risk? - C. gas prices rise sharply
