str 581

51) An investor's risky portfolio is made up of individual stocks. Which of the following statements about this portfolio is true?

A. Selling any stock in this portfolio will lower the beta of the portfolio.

B. An investor cannot change the risk of this portfolio by her choice about personal leverage (lending or borrowing).

C. Each stock in the portfolio will have a beta greater than one.

D. Each stock in the portfolio has its own beta.

52) Due to asymmetric information, the market fears that a firm issuing securities will do so when the stock is _________.

A. overvalued

B. caught up in a bear market

C. being sold by insiders

D. undervalued

53) __________ says to seek out investments that offer the greatest expected risk-adjusted real return.

A. The Signaling Principle

B. The Principle of Self-Interested Behavior

C. The Principle of Valuable Ideas

D. The Principle of Incremental Benefits

54) Under capital rationing, a good tool to use is the __________.

A. payback method

B. PI method

C. NPV method

D. IRR method

55) A checking account is __________.

A. a place to “collect” money between inflows and outflows

B. an account that acts like a reservoir

C. useful because you can add money in any amount

D. all of these

56) __________ says that if you transfer risk to another party, you must offer a return that fully compensates for the amount of risk transferred.

A. The Principle of Self-Interested

B. The Principle of Incremental Benefits

C. The Risk-Return Trade-Off Principle

D. The Behavioral Principle

57) A key variable covered in our text for the Black-Scholes OPM is __________.

A. the riskless APR with continuous compounding

B. dividends.

C. EPS.

D. transaction costs.

58) Dimensions of risk include __________.

A. uncertainty about yesterday’s outcome

B. the impossibility of the same return

C. the certainty of a negative outcome

D. uncertainty about the future outcome

59) According to the Principle of Risk-Return Trade-Off, investors require a higher return to compensate for __________.

A. greater risk

B. less risk

C. diversification

D. lack of diversification

60) Which of these investments would you expect to have the highest rate of return for the next 20 years?

A. anybody’s guess

B. intermediate-term U.S. government bonds

C. long-term corporate bonds

D. U.S. Treasury bills

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