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Question Number Question
1 Which of the following risks confronting ABC Worldwide, Inc. is an example of an unsystematic risk?

A possible decline in the value of its holdings of short-term securities due to fluctuation in interest rates

A possible decline in its earnings due to a strike by its employees

A possible decline in the purchasing power of its net income due to inflations

A possible decline in its net worth due to the need to reinvest funds from an investment at a lower rate than was earned initially

2 According to Markowitz risk can be:

Minimized and eliminated without diversification

Eliminated without compromizing the overall returns

Minimized by selecting an optimum combination of investments

Analyzed exclusively

3 Which of the following statement(s) concerning beta coefficients is (are) correct?

Investors who tend to be risk averse should have a portfolio made up mostly of high-beta-coefficient securities.

Beta coefficients of particular securities change over time

Beta coefficients are constructed based on past data

(1) only

(1) and (3) only

(1) and (2) only

(2) and (3) only

4 A measure of the degree to which two variables move predictably is known as

A. Covariance

B. Standard deviation

C. Semi-variance

D. Positive selection

5 Which of the following concerning the standard deviation of a stock’s rate of return is (are) correct:

The standard deviation of a stock’s rate of return reflects both the systematic and unsystematic risks associated with a stock

Approximately 68% of the rates of return on the stock will fall within plus or minus one stand deviation of the average rate of return

(1) only

(2) only

Both (1) and (2)

Neither (1) nor (2)

6 Items that circumvent Fisher’s Perfect World include:

No barriers to trade

Free flow of information

The firm’s indepent decisionmaking

Satisfying stockholder wealth maximization criteria

Investor’s receiving regular dividends





7 Which of the following concerning systematic and/or unsystematic risk is not correct?

A.. Unsystematic risk can be reduced through diversification of a portfolio

B. A coefficient of determination of .75 in a portfolio means that 75% of the portfolio risk is unsystematic

C. A portfolio’s beta is a measure of its systematic risk

D. A fully diversified portfolio has no unsystematic risk ‘

8 Portfolio risks can be calculated. Which of the following statistical formulas calculate portfolio risk?

Capital Asset Pricing Model (CAPM)

Correlation coefficient


Standard deviation of the variance of returns

9 Unsystematic risk is diversifiable:



10 The beta of a security:

Is not the same as its systematic risk level

Can be measured by standard deviation

Is the slop of the capital market line

III only

II only

I and III only

None of the above

11 Investment risk can best be defined as the _________ in the expected return of an investment.

A. volatility

B. stematic component

C. variability

D. unsystematic component

12 Stocks X and Y produced the following returns in recent years:

Year Stock X Stock Y

1 6% 2%

2 8% 0%

3 4% 10%

4 9% 12%

5 11% 14%

Avg 7.6% 7.6%

Which of the following are the standard deviations of the returns on the two stocks?

X = 2.7, Y = 6.2

X = 2.7, Y = 4.8

X = 3.8, Y = 6.5

X = 3.8, & = 5.9

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