[iceberg1002]

Interest tables illustrate that
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 Answer B



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 C
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 A
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 B
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 B
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 B
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

[ArcSine]

Nice job on getting most of 'em! You'll want a "do-over", though, on 24, 26, 28, 31, and 32.

Note that your answer to 26 contradicts your answer to 24. Also, 28 is poorly worded... technically, only one of the four statements is accurate. But one of the other statements, while not exactly correct, is approximately correct most of the time; so I suppose that makes #28 "answerable" with one of the four choices.

Good luck, comrade!

[iceberg1002]

24.
A diversified portfolio Answer C
a. increases systematic risk
b. reduces systematic risk
c. increases unsystematic risk
d. reduces unsystematic risk

26.
Systematic risk Answer A
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

28. A beta coefficient of 1.2 implies Answer B
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

31. Which of the following will reduce the required return on an investment? Answer B
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 B
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

[morgaine300]

PLEASE do not ever duplicate post like that.

Picture this: I spend a bunch of time going through a bunch of questions like this and answer the post. Just to then discover there's a duplicate that ArcSine has already answered.

That is not fun!

Posts don't get buried here that quickly. If you find it on the 2nd page or something, then just post "bump" on the same thread to move it up. Don't duplicate.

I've deleted your extra one.

EDIT: Same questions, same thread. New threads are for new questions. This makes things easier to follow for the people who are attempting to help you.

[morgaine300]

You haven't changed any of your answers on the ones you re-posted.?

[ArcSine]

For 24, 26, and 32 you need to carefully re-read your book where it discusses the definitions of, and difference between, systematic risk and unsystematic risk, and what effect portfolio diversification has on one of them.

28 and 31 simply require some thinking about the CAPM formula for determining a security's required return:



where are, respectively,

• The security's required return;
• The risk-free rate;
• The beta-coefficient;
• The market's return rate

Think about what effect on R the different components have as they increase or decrease. Remember that and so is a positive quantity. It also helps to note that beta acts as a multiplier which either inflates or deflates the quantity depending on whether beta is greater or less than 1.