UNIT 3. Risk, Return and Investment
Performance Module Exam questions
with answers.
George Parker's bonds fell in price on news of higher interest rates. To which one of the following risks
are George's bonds most likely to be subject? ANS -interest rate risk
Interest rate risk centers on the inverse relationship of interest rate changes and bond prices, so, in this
situation, if interest rates go up, the price of George's bonds go down.
If international stocks were added to a portfolio of U.S. stocks, which one of the following risks would
specifically be added to the portfolio?
purchasing power risk
interest rate risk
exchange rate risk
default risk ANS -exchange rate risk
International stocks specifically add exchange rate risk to a portfolio since their value is affected by
changes in the values of foreign currencies relative to that of the U.S. dollar.
Question 3 of 30
According to the Barnewall study, which one of the following groups is most likely to have a higher risk
tolerance level?
small-business owners who inherited their firms
small-business owners who started their firms
, nonsurgeons (medical and dental)
individuals with inherited wealth ANS -small-business owners who started their firms
Small-business owners who started their firms tend to have a higher risk tolerance level.
A measure of a security's systematic risk is
standard deviation.
beta.
the Sharpe index.
the Jensen index. ANS -beta.
Beta measures the degree to which a security moves with the market or systematic risk.
Assume a growth stock mutual fund has a beta of 1.3. If the stock market increases by 9%, you would
expect this mutual fund to
increase by 9%.
increase by 11.7%.
decrease by 9%.
decrease by 11.7%. ANS -increase by 11.7%.
You would expect any fund with a beta of 1.3 to increase by 11.7% (1.3 × 9%).
Performance Module Exam questions
with answers.
George Parker's bonds fell in price on news of higher interest rates. To which one of the following risks
are George's bonds most likely to be subject? ANS -interest rate risk
Interest rate risk centers on the inverse relationship of interest rate changes and bond prices, so, in this
situation, if interest rates go up, the price of George's bonds go down.
If international stocks were added to a portfolio of U.S. stocks, which one of the following risks would
specifically be added to the portfolio?
purchasing power risk
interest rate risk
exchange rate risk
default risk ANS -exchange rate risk
International stocks specifically add exchange rate risk to a portfolio since their value is affected by
changes in the values of foreign currencies relative to that of the U.S. dollar.
Question 3 of 30
According to the Barnewall study, which one of the following groups is most likely to have a higher risk
tolerance level?
small-business owners who inherited their firms
small-business owners who started their firms
, nonsurgeons (medical and dental)
individuals with inherited wealth ANS -small-business owners who started their firms
Small-business owners who started their firms tend to have a higher risk tolerance level.
A measure of a security's systematic risk is
standard deviation.
beta.
the Sharpe index.
the Jensen index. ANS -beta.
Beta measures the degree to which a security moves with the market or systematic risk.
Assume a growth stock mutual fund has a beta of 1.3. If the stock market increases by 9%, you would
expect this mutual fund to
increase by 9%.
increase by 11.7%.
decrease by 9%.
decrease by 11.7%. ANS -increase by 11.7%.
You would expect any fund with a beta of 1.3 to increase by 11.7% (1.3 × 9%).