Question 1

Although the TSX 300 contains a small proportion of Canadian publicly traded stocks,it represents:

Accepted Answer

A)   all stocks that prefer to be equal-weighted.
B)   all stocks that prefer to be value-weighted.
C)   approximately 50 percent of Canadian stocks traded, in value.
D)   approximately 70 percent of Canadian stocks traded, in value.E) A) and D)
F) None of the above

Question 2

For investment horizons greater than 20 years,long-term corporate bonds traditionally have outperformed common stocks.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following risk types can be diversified by adding stocks to a portfolio?

Accepted Answer

A)   systematic risk
B)   unique risk
C)   default risk
D)   market riskE) A) and B)
F) A) and C)

Question 4

A market index is used to measure performance of a broad-based portfolio of stocks.

Accepted Answer

A) True 
 B)False

Question 5

If the stock market return in 2008 turns out to be 30 percent,what will happen to our estimate of the "normal" risk premium? Does this make sense?

Accepted Answer

If we use historical averages to compute...

Question 6

Average returns on high-risk assets are higher than those on low-risk assets.

Accepted Answer

A) True 
 B)False

Question 7

When inflation is expected to be low,the risk premium on common stocks is expected to be low.

Accepted Answer

A) True 
 B)False

Question 8

What percentage return is achieved by an investor who purchases a stock for $30,receives a $1.50 dividend,and sells the share one year later for $28.50?

Accepted Answer

A)   -5 percent
B)   0 percent
C)   5 percent
D)   10 percentE) A) and C)
F) B) and D)

Question 9

The incremental risk to a portfolio from adding another stock:

Accepted Answer

A)   is always greater than the average portfolio risk.
B)   is always less than the average portfolio risk.
C)   is always positive.
D)   is often positive but can be negative.E) A) and B)
F) B) and D)

Question 10

Which of the following statements seems most appropriate when the TSX 300 increases by 2 percent?

Accepted Answer

A)   all stocks on the exchange increased by 2 percent.
B)   only 2 percent of the TSX index's stocks increased.
C)   a broad-based market indicator was up by 2 percent.
D)   The S&P 500 index increased by 2 percent.E) A) and B)
F) B) and D)

Question 11

A stock that is considered to be a positive risk asset is added to a portfolio.As a result,the portfolio will:

Accepted Answer

A)   have lower average returns.
B)   have a lower variance of returns.
C)   have a higher volatility of returns.
D)   have a lower correlation of returns with stock market indexes.E) None of the above
F) B) and C)

Question 12

Justify the historic ranking of returns for the following three categories of investment,listed from highest to lowest return: Common stocks,long-term Treasury bonds,and Treasury bills.

Accepted Answer

Common stocks offer the highest historic...

Question 13

Which of the following guarantees is offered to common stock investors?

Accepted Answer

A)   guaranteed to receive dividends
B)   guaranteed to receive capital gains
C)   guaranteed only to receive a refund of principal
D)   no guarantees of any formE) C) and D)
F) A) and D)

Question 14

Calculate the inflation rate,given a nominal rate of 10.2% and a real rate of 8.05%.

Accepted Answer

A)   2.99%
B)   2.49%
C)   1.99%
D)   1.06%E) All of the above
F) B) and D)

Question 15

In addition to the number of stocks represented,a difference between the TSX 300 and the Dow is that the TSX 300:

Accepted Answer

A)   dates back to the 19th century while the Dow is a recent innovation.
B)   is value-weighted while the Dow is an equal-weighted index.
C)   includes foreign stocks while the Dow is domestic.
D)   index includes dividends in its return while the Dow does not.E) None of the above
F) All of the above

Question 16

A maturity premium is offered on long-term Treasury bonds due to:

Accepted Answer

A)   the risk of changing interest rates.
B)   the risk of default.
C)   their unique risk.
D)   their systematic risk.E) A) and B)
F) A) and C)

Question 17

Which of the following risks is most important to a well-diversified investor in common stocks?

Accepted Answer

A)   market risk
B)   unique risk
C)   total risk
D)   diversifiable riskE) None of the above
F) A) and B)

Question 18

How can one estimate the opportunity cost of capital for an "average risk" project?

Accepted Answer

Over the years total return index value ...

Question 19

One common reason for reporting standard deviations rather than variances is that standard deviations:

Accepted Answer

A)   are lower.
B)   are stated in understandable units.
C)   account properly for negative returns.
D)   take probability estimates into consideration.E) A) and B)
F) C) and D)

Question 20

What are the components of total return and total risk?

Accepted Answer

Total return equals the yield ...

Exam 11: Introduction to Risk, Return, and the Opportunity Cost of Capital

Which of the following guarantees is offered to common stock investors?

Correct AnswerverifiedShow Answer

Which of the following statements seems most appropriate when the TSX 300 increases by 2 percent?

Correct AnswerverifiedShow Answer

Justify the historic ranking of returns for the following three categories of investment,listed from highest to lowest return: Common stocks,long-term Treasury bonds,and Treasury bills.

Correct AnswerverifiedCommon stocks offer the highest historic...View AnswerShow Answer

For investment horizons greater than 20 years,long-term corporate bonds traditionally have outperformed common stocks.

Correct AnswerverifiedShow Answer

When inflation is expected to be low,the risk premium on common stocks is expected to be low.

Correct AnswerverifiedShow Answer

How can one estimate the opportunity cost of capital for an "average risk" project?

Correct AnswerverifiedOver the years total return index value ...View AnswerShow Answer

Calculate the inflation rate,given a nominal rate of 10.2% and a real rate of 8.05%.

Correct AnswerverifiedShow Answer

In addition to the number of stocks represented,a difference between the TSX 300 and the Dow is that the TSX 300:

Correct AnswerverifiedShow Answer

If the stock market return in 2008 turns out to be 30 percent,what will happen to our estimate of the "normal" risk premium? Does this make sense?

Correct AnswerverifiedIf we use historical averages to compute...View AnswerShow Answer

Although the TSX 300 contains a small proportion of Canadian publicly traded stocks,it represents:

Correct AnswerverifiedShow Answer

Average returns on high-risk assets are higher than those on low-risk assets.

Correct AnswerverifiedShow Answer

A market index is used to measure performance of a broad-based portfolio of stocks.

Correct AnswerverifiedShow Answer

What percentage return is achieved by an investor who purchases a stock for $30,receives a $1.50 dividend,and sells the share one year later for $28.50?

Correct AnswerverifiedShow Answer

Which of the following risk types can be diversified by adding stocks to a portfolio?

Correct AnswerverifiedShow Answer

A maturity premium is offered on long-term Treasury bonds due to:

Correct AnswerverifiedShow Answer

The incremental risk to a portfolio from adding another stock:

Correct AnswerverifiedShow Answer

A stock that is considered to be a positive risk asset is added to a portfolio.As a result,the portfolio will:

Correct AnswerverifiedShow Answer

One common reason for reporting standard deviations rather than variances is that standard deviations:

Correct AnswerverifiedShow Answer

What are the components of total return and total risk?

Correct AnswerverifiedTotal return equals the yield ...View AnswerShow Answer

Which of the following risks is most important to a well-diversified investor in common stocks?

Correct AnswerverifiedShow Answer

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Common stocks offer the highest historic...
View Answer

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Over the years total return index value ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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If we use historical averages to compute...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Total return equals the yield ...
View Answer

Correct Answer
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