FINC 306 Exam 3 Questions And Answers
Which is another name for systematic risk? - CORRECT - ANSWERS market risk
Which type of risk typically affects all stocks at the same time? - CORRECT - ANSWERS
systematic risk
Which is another name for diversifiable risk? - CORRECT - ANSWERS idiosyncratic risk
Diversification can eliminate all risk from a portfolio. - CORRECT - ANSWERS False
What is the average correlation between a randomly selected pair of U.S. stocks? - CORRECT -
ANSWERS Between 0 and 1
Which correlation will result in the greatest diversification benefit? - CORRECT - ANSWERS
between -1 and 0
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. - CORRECT - ANSWERS False
When thinking about stocks, the risk-expected return tradeoff likely reflects which type of
risk? - CORRECT - ANSWERS Systematic
According to the CAPM, what is the relationship between a stock's volatility and its required
rate of return? - CORRECT - ANSWERS No relationship between volatility adn required
rate of return
Which is another name for systematic risk? - CORRECT - ANSWERS market risk
Which type of risk typically affects all stocks at the same time? - CORRECT - ANSWERS
systematic risk
Which is another name for diversifiable risk? - CORRECT - ANSWERS idiosyncratic risk
Diversification can eliminate all risk from a portfolio. - CORRECT - ANSWERS False
What is the average correlation between a randomly selected pair of U.S. stocks? - CORRECT -
ANSWERS Between 0 and 1
Which correlation will result in the greatest diversification benefit? - CORRECT - ANSWERS
between -1 and 0
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. - CORRECT - ANSWERS False
When thinking about stocks, the risk-expected return tradeoff likely reflects which type of
risk? - CORRECT - ANSWERS Systematic
According to the CAPM, what is the relationship between a stock's volatility and its required
rate of return? - CORRECT - ANSWERS No relationship between volatility adn required
rate of return
