FIN 301 FINAL EXAM QUESTIONS &
ACCURATE ANSWERS PASSED 100%
low risk investments have... - Correct Answer ✔✔ lower expected returns
high risk investments have... - Correct Answer ✔✔ higher expected returns
the least risky investment - Correct Answer ✔✔ treasury bills
the most risky investment - Correct Answer ✔✔ small company common stocks
price/return volatility is a way to measure? - Correct Answer ✔✔ risk
a rational investor requires a higher expected return to accept... - Correct Answer ✔✔
additional risk
model that describes the trade off between risk and return... - Correct Answer ✔✔
capital asset pricing model (CAPM)
CAPM equation - Correct Answer ✔✔ = risk free rate + [Beta * (Market Risk Premium -
Return on Market)]
rate of return equation - Correct Answer ✔✔ = (cash pmt. + change in price) / price paid
a capital gain/loss is realized when... - Correct Answer ✔✔ the asset is sold
risk is measured by... - Correct Answer ✔✔ the possible range of returns around an
expected return, known as the standard deviation
a greater the standard deviation of a stock means... - Correct Answer ✔✔ more
fluctuations and greater risk
simple averages can be misleading when... - Correct Answer ✔✔ analyzing returns
_______ or _______ averages are more representative of actual investment
performance - Correct Answer ✔✔ compound or geometric
simple averages are misleading because... - Correct Answer ✔✔ they can hide poor
performances
relationship between beta and return is... - Correct Answer ✔✔ positive
stock return estimate equation - Correct Answer ✔✔ = market return * beta
, beta is a measure of... - Correct Answer ✔✔ market magnification
systematic risk is measured by... - Correct Answer ✔✔ beta
the market related risk that you are paid to take is... - Correct Answer ✔✔ systematic
the risk that cannot be diversified away is... - Correct Answer ✔✔ systematic
the firm specific risk that affects the return of that firm or industry only is... - Correct
Answer ✔✔ unsystematic
the risk that can be diversified away is... - Correct Answer ✔✔ unsystematic
in a diversified portfolio, which risk averages out to be 0? - Correct Answer ✔✔
unsystematic
which risk are you not paid to take? - Correct Answer ✔✔ unsystematic
alpha is a measure of... - Correct Answer ✔✔ performance
alpha equation - Correct Answer ✔✔ = observed return of asset - expected return of
asset
a positive alpha is... - Correct Answer ✔✔ good
a negative alpha is... - Correct Answer ✔✔ bad
gross returns are before... - Correct Answer ✔✔ expenses
net return equation - Correct Answer ✔✔ = gross returns - expenses
using gross returns, the average mutual fund has an alpha of... - Correct Answer ✔✔
0%
good performance in the past is not an indicator of... - Correct Answer ✔✔ good
performance in the future
using net returns, the average mutual fund alpha is... - Correct Answer ✔✔ -1.2%
if a stock is above the risk-return line it is... - Correct Answer ✔✔ undervalued
if a stock is below the risk-return line it is... - Correct Answer ✔✔ overvalued
in efficient markets, asset prices react very quickly to the receipt of... - Correct Answer
✔✔ new info
ACCURATE ANSWERS PASSED 100%
low risk investments have... - Correct Answer ✔✔ lower expected returns
high risk investments have... - Correct Answer ✔✔ higher expected returns
the least risky investment - Correct Answer ✔✔ treasury bills
the most risky investment - Correct Answer ✔✔ small company common stocks
price/return volatility is a way to measure? - Correct Answer ✔✔ risk
a rational investor requires a higher expected return to accept... - Correct Answer ✔✔
additional risk
model that describes the trade off between risk and return... - Correct Answer ✔✔
capital asset pricing model (CAPM)
CAPM equation - Correct Answer ✔✔ = risk free rate + [Beta * (Market Risk Premium -
Return on Market)]
rate of return equation - Correct Answer ✔✔ = (cash pmt. + change in price) / price paid
a capital gain/loss is realized when... - Correct Answer ✔✔ the asset is sold
risk is measured by... - Correct Answer ✔✔ the possible range of returns around an
expected return, known as the standard deviation
a greater the standard deviation of a stock means... - Correct Answer ✔✔ more
fluctuations and greater risk
simple averages can be misleading when... - Correct Answer ✔✔ analyzing returns
_______ or _______ averages are more representative of actual investment
performance - Correct Answer ✔✔ compound or geometric
simple averages are misleading because... - Correct Answer ✔✔ they can hide poor
performances
relationship between beta and return is... - Correct Answer ✔✔ positive
stock return estimate equation - Correct Answer ✔✔ = market return * beta
, beta is a measure of... - Correct Answer ✔✔ market magnification
systematic risk is measured by... - Correct Answer ✔✔ beta
the market related risk that you are paid to take is... - Correct Answer ✔✔ systematic
the risk that cannot be diversified away is... - Correct Answer ✔✔ systematic
the firm specific risk that affects the return of that firm or industry only is... - Correct
Answer ✔✔ unsystematic
the risk that can be diversified away is... - Correct Answer ✔✔ unsystematic
in a diversified portfolio, which risk averages out to be 0? - Correct Answer ✔✔
unsystematic
which risk are you not paid to take? - Correct Answer ✔✔ unsystematic
alpha is a measure of... - Correct Answer ✔✔ performance
alpha equation - Correct Answer ✔✔ = observed return of asset - expected return of
asset
a positive alpha is... - Correct Answer ✔✔ good
a negative alpha is... - Correct Answer ✔✔ bad
gross returns are before... - Correct Answer ✔✔ expenses
net return equation - Correct Answer ✔✔ = gross returns - expenses
using gross returns, the average mutual fund has an alpha of... - Correct Answer ✔✔
0%
good performance in the past is not an indicator of... - Correct Answer ✔✔ good
performance in the future
using net returns, the average mutual fund alpha is... - Correct Answer ✔✔ -1.2%
if a stock is above the risk-return line it is... - Correct Answer ✔✔ undervalued
if a stock is below the risk-return line it is... - Correct Answer ✔✔ overvalued
in efficient markets, asset prices react very quickly to the receipt of... - Correct Answer
✔✔ new info
