QUESTION 1Match the description to the formula. Total holding period return Expected return on one stock Variance of return on one stockCoefficient of variationSharpe ratioExpected return for a portfolioVariance for a two-asset portfolioCovariance of returns between two assets Correlation between the returns on two assetsCAPMQUESTION 2Robert paid $100 for a stock one year ago. The total return on the stock was 10 percent. Therefore, the stock must be selling for $110 today. True FalseQUESTION 3Whenever the outcome of an event has a number of different possibilities that have equal probability of occurrence, then the expected value of the outcome is equal to the simple average of the individual events. True FalseQUESTION 4Variance can be a negative. True FalseQUESTION 5Variance is equal to the square root of standard deviation. True FalseQUESTION 6If the returns on two assets have a correlation coefficient of one, then there are no benefits of diversification by combining these assets in a two-asset portfolio. True FalseQUESTION 7Which of the following investment classes had the greatest average return in the historical data?Short term government bondsLong term government bondsLarge US stocksSmall US stocksQUESTION 8Which of the following investment classes had the greatest variability in returns in the historical data?Short term government bondsLong term government bondsLarge US stocksSmall US stocks QUESTION 9Which of the following statements is correct if investors are risk averse?The greater the risk associated with an investment, the lower the return investors expect from it.When choosing between two investments that have the same level of risk, investors prefer the investment with the higher return.If two investments have the same expected return, investors prefer the riskier alternative.When choosing between two investments that have the same level of risk, investors prefer the investment with the lower return.QUESTION 10Common stock portfolios that offer the highest expected return for a given level of risk are know asefficient portfolios.inefficient portfolios.unusual portfolios.empty portfolios. QUESTION 11Which of the following risks is considered a “nondiversifiable” risk in common stock returns?the company CEO becomes illthe company receives a new contract for a large purchase of its productsthe US Congress eliminates the corporate income taxthe company loses a lawsuit filed by its employeesQUESTION 12The statistic calculated as the weighted average of the squared deviations from the mean is known asstandard deviationstandard weightstandard fitvarianceQUESTION 13If a random variable follows a normal distribution, what is the probability that the random variable is larger than +1.96 standard deviations from the mean?1.25 percent2.50 percent3.75 percent5.00 percent

QUESTION 1Match the description to the formula. Total holding period return Expected return on one stock Variance of return on one stockCoefficient of variationSharpe ratioExpected return for a portfolioVariance for a two-asset portfolioCovariance of returns between two assets Correlation between the returns on two assetsCAPMQUESTION 2Robert paid $100 for a stock one year ago. The total return on the stock was 10 percent. Therefore, the stock must be selling for $110 today. True FalseQUESTION 3Whenever the outcome of an event has a number of different possibilities that have equal probability of occurrence, then the expected value of the outcome is equal to the simple average of the individual events. True FalseQUESTION 4Variance can be a negative. True FalseQUESTION 5Variance is equal to the square root of standard deviation. True FalseQUESTION 6If the returns on two assets have a correlation coefficient of one, then there are no benefits of diversification by combining these assets in a two-asset portfolio. True FalseQUESTION 7Which of the following investment classes had the greatest average return in the historical data?Short term government bondsLong term government bondsLarge US stocksSmall US stocksQUESTION 8Which of the following investment classes had the greatest variability in returns in the historical data?Short term government bondsLong term government bondsLarge US stocksSmall US stocks QUESTION 9Which of the following statements is correct if investors are risk averse?The greater the risk associated with an investment, the lower the return investors expect from it.When choosing between two investments that have the same level of risk, investors prefer the investment with the higher return.If two investments have the same expected return, investors prefer the riskier alternative.When choosing between two investments that have the same level of risk, investors prefer the investment with the lower return.QUESTION 10Common stock portfolios that offer the highest expected return for a given level of risk are know asefficient portfolios.inefficient portfolios.unusual portfolios.empty portfolios. QUESTION 11Which of the following risks is considered a “nondiversifiable” risk in common stock returns?the company CEO becomes illthe company receives a new contract for a large purchase of its productsthe US Congress eliminates the corporate income taxthe company loses a lawsuit filed by its employeesQUESTION 12The statistic calculated as the weighted average of the squared deviations from the mean is known asstandard deviationstandard weightstandard fitvarianceQUESTION 13If a random variable follows a normal distribution, what is the probability that the random variable is larger than +1.96 standard deviations from the mean?1.25 percent2.50 percent3.75 percent5.00 percent

QUESTION 1Match the description to the formula. Total holding period return Expected return on one stock Variance of return on one stockCoefficient of variationSharpe ratioExpected return for a portfolioVariance for a two-asset portfolioCovariance of returns between two assets Correlation between the returns on two assetsCAPMQUESTION 2Robert paid $100 for a stock one year ago. The total return on the stock was 10 percent. Therefore, the stock must be selling for $110 today. True FalseQUESTION 3Whenever the outcome of an event has a number of different possibilities that have equal probability of occurrence, then the expected value of the outcome is equal to the simple average of the individual events. True FalseQUESTION 4Variance can be a negative. True FalseQUESTION 5Variance is equal to the square root of standard deviation. True FalseQUESTION 6If the returns on two assets have a correlation coefficient of one, then there are no benefits of diversification by combining these assets in a two-asset portfolio. True FalseQUESTION 7Which of the following investment classes had the greatest average return in the historical data?Short term government bondsLong term government bondsLarge US stocksSmall US stocksQUESTION 8Which of the following investment classes had the greatest variability in returns in the historical data?Short term government bondsLong term government bondsLarge US stocksSmall US stocks QUESTION 9Which of the following statements is correct if investors are risk averse?The greater the risk associated with an investment, the lower the return investors expect from it.When choosing between two investments that have the same level of risk, investors prefer the investment with the higher return.If two investments have the same expected return, investors prefer the riskier alternative.When choosing between two investments that have the same level of risk, investors prefer the investment with the lower return.QUESTION 10Common stock portfolios that offer the highest expected return for a given level of risk are know asefficient portfolios.inefficient portfolios.unusual portfolios.empty portfolios. QUESTION 11Which of the following risks is considered a “nondiversifiable” risk in common stock returns?the company CEO becomes illthe company receives a new contract for a large purchase of its productsthe US Congress eliminates the corporate income taxthe company loses a lawsuit filed by its employeesQUESTION 12The statistic calculated as the weighted average of the squared deviations from the mean is known asstandard deviationstandard weightstandard fitvarianceQUESTION 13If a random variable follows a normal distribution, what is the probability that the random variable is larger than +1.96 standard deviations from the mean?1.25 percent2.50 percent3.75 percent5.00 percent