1. While a bond investor may focus primarily on coupon interest received, the total return on bond held to maturity may also depend on:

A) changes in interest rates
B) capital gain or loss
C) adjustments to par value
D) dividend payments

2. The equity risk premium is an important concept in finance, but is often misunderstood. An important source of controversy in this regard is the difference between ____________ and ___________ risk premiums.

A) historical; expected
B) realized; guaranteed
C) calculated; estimated
D) Variable; fixed

3. In a portfolio containing two stocks with perfect inverse correlations, the standard deviation of returns will always be;
A) zero
B) small
C) large
D) uncertain

4. In the case of a portfolio with two securities, the factor that determine total portfolio risk are the variance of each security, the convariance between the securities, and the ______________ for each security.
A) standard deviation
B) dispersion
C)geometric mean
D) portfolio weights

5. Jane is an individual investor. She has recently completed an investment strategy utilizing Markowitz portfolio strategy. From this information an observer would most likely conclude that Jane's porfolio is:
A) comprised mostly of high return stocks
B) well diversified
C) expected to outperform the market
D) spread across many industry groups

6. The value of a geometric mean return calculation, compared to an arithmetic mean, is that it computes;
A) compound cumulative returns
B) returns over several years
C) inflation adjusted returns
D) better average single period returns

7. Which of the following can never be a valid correlation coefficient?
A) - 0.8
B) 0.0
C) 1.0
D) 1.4

8. Modern portfolio theory is similar to principles used in the insurance business, in that its risk reduction properties are founded on the:
A) rule of diminishing returns
B) theory of increasing utility
C) law of large numbers
D) principles of cause and effect

9. Mary is evaluating the risk (return deviation) of a model stock portfolio she has constructed. She knows that an ex ante set of returns is a more useful approach. However, she decides to examine ex post returns because she knows that for a well-diversified portfolio, they are likely to be:

A) within one standard deviation
B) reasonably steady across time
C) cumulatively accurate
D) more indicative across of future results