FINC 306 Exam 3 UTK QUESTIONS AND
VERIFIED ANSWERS
14.25% - CORRECT - ANSWERS Stock A has an expected return of 12%, and Stock B has an
expected return of 15%. If you invest $10,000 in Stock A and $30,000 in Stock B, what is the
expected return for your portfolio?
13.5%
12%
15%
14.25%
between 0 and 1 - CORRECT - ANSWERS What is the average correlation between a
randomly selected pair of U.S. stocks?
between 0 and 1
1
0
-1
False - CORRECT - ANSWERS 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.
True
, False
between -1 and 0 - CORRECT - ANSWERS Which correlation will result in the greatest
diversification benefit?
between 0 and 1
0
between -1 and 0
market risk - CORRECT - ANSWERS Which is another name for systematic risk?
idiosyncratic risk
firm-specific risk
diversifiable risk
market risk
idiosyncratic risk - CORRECT - ANSWERS Which is another name for diversifiable risk?
systematic risk
idiosyncratic risk
market risk
systematic risk - CORRECT - ANSWERS According to the CAPM, which type of risk
translates to a higher expected return?
neither systematic nor diversifiable risk
diversifiable risk
both systematic and diversifiable risk
systematic risk
beta - CORRECT - ANSWERS What is the CAPM's measure of a stock's systematic risk?
VERIFIED ANSWERS
14.25% - CORRECT - ANSWERS Stock A has an expected return of 12%, and Stock B has an
expected return of 15%. If you invest $10,000 in Stock A and $30,000 in Stock B, what is the
expected return for your portfolio?
13.5%
12%
15%
14.25%
between 0 and 1 - CORRECT - ANSWERS What is the average correlation between a
randomly selected pair of U.S. stocks?
between 0 and 1
1
0
-1
False - CORRECT - ANSWERS 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.
True
, False
between -1 and 0 - CORRECT - ANSWERS Which correlation will result in the greatest
diversification benefit?
between 0 and 1
0
between -1 and 0
market risk - CORRECT - ANSWERS Which is another name for systematic risk?
idiosyncratic risk
firm-specific risk
diversifiable risk
market risk
idiosyncratic risk - CORRECT - ANSWERS Which is another name for diversifiable risk?
systematic risk
idiosyncratic risk
market risk
systematic risk - CORRECT - ANSWERS According to the CAPM, which type of risk
translates to a higher expected return?
neither systematic nor diversifiable risk
diversifiable risk
both systematic and diversifiable risk
systematic risk
beta - CORRECT - ANSWERS What is the CAPM's measure of a stock's systematic risk?
