Question 1. According to the text, a risk-averse investor _____.
demands a premium for assuming risk
will only participate in low-risk or risk-free investments
is one of a small minority in the United States
More than one of the above

Question 2. Under Markowitz's theory, the ideal portfolio for an investor is represented by _____.
the point of tangency between the efficient frontier and the investor's indifference curve
the highest possible indifference curve
the highest possible point on the efficient frontier
None of the above

Question 3. Systematic risk is rewarded with a premium in the marketplace because _____.
risk is particular to the stock or industry
it represents a random occurrence which could not have been foreseen
it is associated with market movements that cannot be eliminated through diversification
None of the above

Question 4. Which of the following are assumptions of the capital asset pricing model?
Funds can be borrowed or lent in unlimited quantities at a risk-free rate.
The objective of all investors is to maximize their expected utility over the same one-period timeframe, using the same basis for evaluating investments.
There are no taxes or transaction costs associated with any investment.
All of the above

Question 5. A good way to minimize risk and receive an optimum return on your portfolio is _____.
through diversification
to buy only risk-free securities
through blue-chip stock purchases only
through junk-bonds

Question 6. Assume a portfolio has the possibility of returning 3%, 6%, 11%, or 16%, with the likelihood of 20%, 30%, 25%, and 25%, respectively. The expected value of the portfolio is _____.
8.75%
9.0%
9.15%
9.51%

Question 7. If the market rate of return is 10% and the beta on a particular stock is 1.00, the return on the stock will be _____.
greater than 10%
10%
less than 10%
dependent on some other factor

Question 8. For two investments with a correlation coefficient (rij) greater than +1, the portfolio standard deviation will be _____ the weighted average of the individual investments' standard deviation.
more than
less than
equal to
zero compared to

Question 9. The capital asset pricing model (CAPM) takes off where the _____ concluded.
market line
capital market line
efficient frontier and Markowitz portfolio theory
arbitrage pricing theory

Question 10. Using the formula for the security market line (Formula 21-7), if the risk-free rate (RF) is 6%, the market rate of return (KM) is 12%, and the beta (bi) is 1.2, compute the anticipated return for stock i (Ki).
20.4%
16.33%
13.64%
13.2%