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20. Interest tables illustrate that (Answer B)

1. a dollar received today is worth more than a dollar to be received tomorrow
2. the present value of an annuity of $100 at 15% is worth more than an annuity of $100 at 12%
3. "discounting the future at a high rate" places emphasis on the present

a. 1 and 2
b. 1 and 3
c. 2 and 3
d. 1, 2, and 3

21. Which is the largest if interest rates are 10%? (Answer C)
a. present value of $100 after five years
b. present value of $100 annuity for five years
c. future value of $100 annuity for five years
d. future value of $100 after five years

22. Which is smallest if interest rates are 10%? (Answer C)
a. present value of $100 annuity for five years
b. future value of $100 annuity for five years
c. present value of $100 after five years
d. $100 received right now

23. The present value of an annuity due (Answer B)
a. is less than the present value of an ordinary annuity
b. is greater than the present value of an ordinary due
c. is less than the cost of the annuity
d. is greater than the cost of the annuity

24. A diversified portfolio (Answer B)
a. increases systematic risk
b. reduces systematic risk
c. increases unsystematic risk
d. reduces unsystematic risk

25. The risk associated with dispersion around an expected value (e.g. expected return) is measured by the (Answer C)
a. beta coefficient
b. range (i.e. high-low values)
c. standard deviation
d. debt to total assets (i.e. the debt ratio)

26. Systematic risk (Answer B)

1. is the tendency for a stock's return and the return on the market to move together
2. is reduced by constructing a diversified portfolio
3. depends on the firm's business and financial risk
4. is measured by beta coefficients

a. 1 and 2
b. 2 and 3
c. 1 and 4
d. 2 and 4

27. A beta coefficient for a risky stock is (Answer C)
a. less than 1.0
b. equal to 1.0
c. greater than 1.0
d. negative

28. A beta coefficient of 1.2 implies (Answer A)

1. the stock is more risky than the market
2. the stock's return is 1.2 times the return on the market
3. the stock is less risky than the market
4. the market's return is 1.2 times the return on the stock

a. 1 and 2
b. 1 and 4
c. 2 and 3
d. 3 and 4

29. An investor may reduce risk by selecting (Answer B)
a. high beta stocks
b. stocks with poorly correlated returns
c. a cross-section of firms in the same industry
d. stocks traded on organized exchanges

30. To measure risk, the capital asset pricing model uses (Answer C)
a. beta
b. an asset's standard deviation
c. the volatility of an asset's cash flows
d. the term during which the asset is held

31. Which of the following will reduce the required return on an investment? (Answer A)
a. an increase in beta and a reduction in the Treasury bill rate
b. an increase in the Treasury bill rate and a decrease in beta
c. a decrease in the Treasury bill rate and a decrease in beta
d. an increase in the Treasury bill rate and an increase in beta

32. For a security to help diversify a portfolio, the asset (Answer C)
a. must generate a greater return than the average return on the portfolio
b. should not be sensitive to changes in security prices
c. should have a return that is negatively correlated with the return on other securities in the portfolio
d. must be a debt instrument if the portfolio consists primarily of stocks

33. Components of the capital asset pricing model include (Answer C)
a. a stock's market price
b. the standard deviation of a stock's return
c. the rate on a risk-free security
d. the investor's need for income versus capital gains

Thanks for your help.

[ArcSine]

Good job on these too... but here you need to give nos. 24, 26, and 31 another go. Note that the issue underlying 24 and 26 is the same one that tripped you up on no. 7 of your other post.