Test bank CHAPTER 08 RISK AND RATES OF RETURN Quản trị tài chính

CHAPTER 08—RISK AND RATES OF RETURN

1. The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as
measured by its standard deviation.

a. True

b. Fals
e

ANSWER:

False

POINTS:

1

DIFFICULTY:

EASY

REFERENCES:

8-2 Stand-Alone Risk

LEARNING OBJECTIVES: FOFM.BRIG.16.08.02 - Stand-Alone Risk

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Standard deviation

KEYWORDS:

Bloom’s: Knowledge

Cengage Learning Testing, Powered by Cognero

Page 1


CHAPTER 08—RISK AND RATES OF RETURN

2. The coefficient of variation, calculated as the standard deviation of expected returns divided by the expected return, is a
standardized measure of the risk per unit of expected return.

a. True

b. Fals
e

ANSWER:

True

POINTS:

1

DIFFICULTY:

EASY

REFERENCES:

8-2 Stand-Alone Risk

LEARNING OBJECTIVES: FOFM.BRIG.16.08.02 - Stand-Alone Risk

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Coefficient of variation

KEYWORDS:

Bloom’s: Knowledge

Cengage Learning Testing, Powered by Cognero

Page 2


CHAPTER 08—RISK AND RATES OF RETURN

3. The standard deviation is a better measure of risk than the coefficient of variation if the expected returns of the
securities being compared differ significantly.

a. True

b. Fals
e

ANSWER:

False

POINTS:

1

DIFFICULTY:

EASY

REFERENCES:

8-2 Stand-Alone Risk

LEARNING OBJECTIVES: FOFM.BRIG.16.08.02 - Stand-Alone Risk

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

CV vs. SD

KEYWORDS:

Bloom's: Comprehension

Cengage Learning Testing, Powered by Cognero

Page 3


CHAPTER 08—RISK AND RATES OF RETURN

4. Risk-averse investors require higher rates of return on investments whose returns are highly uncertain, and most
investors are risk averse.

a. True

b. Fals
e

ANSWER:

True

POINTS:

1

DIFFICULTY:

EASY

REFERENCES:

8-2 Stand-Alone Risk

LEARNING OBJECTIVES: FOFM.BRIG.16.08.02 - Stand-Alone Risk

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Risk aversion

KEYWORDS:

Bloom’s: Knowledge

Cengage Learning Testing, Powered by Cognero

Page 4


CHAPTER 08—RISK AND RATES OF RETURN

5. When adding a randomly chosen new stock to an existing portfolio, the higher (or more positive) the degree of
correlation between the new stock and stocks already in the portfolio, the less the additional stock will reduce the
portfolio's risk.

a. True

b. Fals
e

ANSWER:

True

POINTS:

1

DIFFICULTY:

EASY

REFERENCES:

8-3 Risk in a Portfolio Context: The CAPM

LEARNING OBJECTIVES: FOFM.BRIG.16.08.03 - Risk in a Portfolio Context: The CAPM

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Portfolio risk

KEYWORDS:

Bloom's: Comprehension

Cengage Learning Testing, Powered by Cognero

Page 5


CHAPTER 08—RISK AND RATES OF RETURN

6. Diversification will normally reduce the riskiness of a portfolio of stocks.

a. True

b. Fals
e

ANSWER:

True

POINTS:

1

DIFFICULTY:

EASY

REFERENCES:

8-3 Risk in a Portfolio Context: The CAPM

LEARNING OBJECTIVES: FOFM.BRIG.16.08.03 - Risk in a Portfolio Context: The CAPM

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Portfolio risk

KEYWORDS:

Bloom’s: Knowledge

7. In portfolio analysis, we often use ex post (historical) returns and standard deviations, despite the fact that we are really

Cengage Learning Testing, Powered by Cognero

Page 6


CHAPTER 08—RISK AND RATES OF RETURN

interested in ex ante (future) data.

a. True

b. Fals
e

ANSWER:

True

POINTS:

1

DIFFICULTY:

EASY

REFERENCES:

8-3 Risk in a Portfolio Context: The CAPM

LEARNING OBJECTIVES: FOFM.BRIG.16.08.03 - Risk in a Portfolio Context: The CAPM

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Portfolio risk

KEYWORDS:

Bloom’s: Knowledge

8. The realized return on a stock portfolio is the weighted average of the expected returns on the stocks in the portfolio.

Cengage Learning Testing, Powered by Cognero

Page 7

CHAPTER 08—RISK AND RATES OF RETURN

a. True

b. Fals
e

ANSWER:

False

POINTS:

1

DIFFICULTY:

EASY

REFERENCES:

8-3 Risk in a Portfolio Context: The CAPM

LEARNING OBJECTIVES: FOFM.BRIG.16.08.03 - Risk in a Portfolio Context: The CAPM

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Portfolio return

KEYWORDS:

Bloom’s: Knowledge

9. Market risk refers to the tendency of a stock to move with the general stock market. A stock with above-average market
risk will tend to be more volatile than an average stock, and its beta will be greater than 1.0.

a. True
Cengage Learning Testing, Powered by Cognero

Page 8


CHAPTER 08—RISK AND RATES OF RETURN

b. Fals
e

ANSWER:

True

POINTS:

1

DIFFICULTY:

EASY

REFERENCES:

8-3 Risk in a Portfolio Context: The CAPM

LEARNING OBJECTIVES: FOFM.BRIG.16.08.03 - Risk in a Portfolio Context: The CAPM

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Market risk

KEYWORDS:

Bloom's: Comprehension

10. An individual stock's diversifiable risk, which is measured by its beta, can be lowered by adding more stocks to the
portfolio in which the stock is held.

a. True

Cengage Learning Testing, Powered by Cognero

Page 9


CHAPTER 08—RISK AND RATES OF RETURN

b. Fals
e

ANSWER:

False

POINTS:

1

DIFFICULTY:

EASY

REFERENCES:

8-3 Risk in a Portfolio Context: The CAPM

LEARNING OBJECTIVES: FOFM.BRIG.16.08.03 - Risk in a Portfolio Context: The CAPM

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Market risk

KEYWORDS:

Bloom's: Comprehension

11. Managers should under no conditions take actions that increase their firm's risk relative to the market, regardless of
how much those actions would increase the firm's expected rate of return.

a. True
Cengage Learning Testing, Powered by Cognero

Page 10


CHAPTER 08—RISK AND RATES OF RETURN

b. Fals
e

ANSWER:

False

POINTS:

1

DIFFICULTY:

EASY

REFERENCES:

8-3 Risk in a Portfolio Context: The CAPM

LEARNING OBJECTIVES: FOFM.BRIG.16.08.03 - Risk in a Portfolio Context: The CAPM

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Risk and expected returns

KEYWORDS:

Bloom's: Comprehension

12. One key conclusion of the Capital Asset Pricing Model is that the value of an asset should be measured by considering
both the risk and the expected return of the asset, assuming that the asset is held in a well-diversified portfolio. The risk of

the asset held in isolation is not relevant under the CAPM.

Cengage Learning Testing, Powered by Cognero

Page 11


CHAPTER 08—RISK AND RATES OF RETURN

a. True

b. Fals
e

ANSWER:

True

POINTS:

1

DIFFICULTY:

EASY

REFERENCES:

8-3 Risk in a Portfolio Context: The CAPM

LEARNING OBJECTIVES: FOFM.BRIG.16.08.03 - Risk in a Portfolio Context: The CAPM

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FFMC.BRIG.15.07 - Risk and return

TOPICS:

CAPM and risk

KEYWORDS:

Bloom's: Comprehension

13. According to the Capital Asset Pricing Model, investors are primarily concerned with portfolio risk, not the risks of
individual stocks held in isolation. Thus, the relevant risk of a stock is the stock's contribution to the riskiness of a welldiversified portfolio.

Cengage Learning Testing, Powered by Cognero

Page 12


CHAPTER 08—RISK AND RATES OF RETURN

a. True

b. Fals
e

ANSWER:

True

POINTS:

1

DIFFICULTY:

EASY

REFERENCES:

8-3 Risk in a Portfolio Context: The CAPM

LEARNING OBJECTIVES: FOFM.BRIG.16.08.03 - Risk in a Portfolio Context: The CAPM

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

CAPM and risk

KEYWORDS:

Bloom's: Comprehension

14. If investors become less averse to risk, the slope of the Security Market Line (SML) will increase.

a. True

Cengage Learning Testing, Powered by Cognero

Page 13


CHAPTER 08—RISK AND RATES OF RETURN

b. Fals
e

ANSWER:

False

POINTS:

1

DIFFICULTY:

EASY

REFERENCES:

8-4 The Relationship Between Risk and Rates of Return

LEARNING OBJECTIVE FOFM.BRIG.16.08.04 - The Relationship Between Risk and Rates of
S:
Return

NATIONAL STANDARDS United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
:

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

SML and risk aversion

KEYWORDS:

Bloom’s: Knowledge

15. Most corporations earn returns for their stockholders by acquiring and operating tangible and intangible assets. The
relevant risk of each asset should be measured in terms of its effect on the risk of the firm's stockholders.

a. True

Cengage Learning Testing, Powered by Cognero

Page 14

CHAPTER 08—RISK AND RATES OF RETURN

b. Fals
e

ANSWER:

True

POINTS:

1

DIFFICULTY:

EASY

REFERENCES:

8-6 Some Concluding Thoughts: Implications for Corporate Managers and
Investors

LEARNING OBJEC FOFM.BRIG.16.08.06 - Some Concluding Thoughts: Implications for
TIVES:
Corporate Managers and Investors

NATIONAL STAND United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
ARDS:

STATE STANDARD United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return
S:

TOPICS:

Physical assets

KEYWORDS:

Bloom's: Comprehension

16. Variance is a measure of the variability of returns, and since it involves squaring the deviation of each actual return
from the expected return, it is always larger than its square root, the standard deviation.

Cengage Learning Testing, Powered by Cognero

Page 15


CHAPTER 08—RISK AND RATES OF RETURN

a. True

b. Fals
e

ANSWER:

True

POINTS:

1

DIFFICULTY:

MODERATE

REFERENCES:

8-2 Stand-Alone Risk

LEARNING OBJECTIVES: FOFM.BRIG.16.08.02 - Stand-Alone Risk

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Variance

KEYWORDS:

Bloom's: Knowledge

17. Because of differences in the expected returns on different investments, the standard deviation is not always an

adequate measure of risk. However, the coefficient of variation adjusts for differences in expected returns and thus allows
investors to make better comparisons of investments' stand-alone risk.

Cengage Learning Testing, Powered by Cognero

Page 16


CHAPTER 08—RISK AND RATES OF RETURN

a. True

b. Fals
e

ANSWER:

True

POINTS:

1

DIFFICULTY:

MODERATE

REFERENCES:

8-2 Stand-Alone Risk

LEARNING OBJECTIVES: FOFM.BRIG.16.08.02 - Stand-Alone Risk

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Coefficient of variation

KEYWORDS:

Bloom’s: Knowledge

18.

a. True

Cengage Learning Testing, Powered by Cognero

Page 17


CHAPTER 08—RISK AND RATES OF RETURN

b. Fals
e

ANSWER:

True

POINTS:

1

DIFFICULTY:

MODERATE

REFERENCES:

8-2 Stand-Alone Risk

LEARNING OBJECTIVES: FOFM.BRIG.16.08.02 - Stand-Alone Risk

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Risk aversion

KEYWORDS:

Bloom’s: Knowledge

19. If investors are risk averse and hold only one stock, we can conclude that the required rate of return on a stock whose
standard deviation is 0.21 will be greater than the required return on a stock whose standard deviation is 0.10. However, if
stocks are held in portfolios, it is possible that the required return could be higher on the stock with the lower standard
deviation.

a. True

Cengage Learning Testing, Powered by Cognero

Page 18


CHAPTER 08—RISK AND RATES OF RETURN

b. Fals
e

ANSWER:

True

POINTS:

1

DIFFICULTY:

MODERATE

REFERENCES:

8-2 Stand-Alone Risk

LEARNING OBJECTIVES: FOFM.BRIG.16.08.02 - Stand-Alone Risk

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Risk aversion

KEYWORDS:

Bloom's: Comprehension

20. Someone who is risk averse has a general dislike for risk and a preference for certainty. If risk aversion exists in the
market, then investors in general are willing to accept somewhat lower returns on less risky securities. Different investors
have different degrees of risk aversion, and the end result is that investors with greater risk aversion tend to hold securities
with lower risk (and therefore a lower expected return) than investors who have more tolerance for risk.

a. True

Cengage Learning Testing, Powered by Cognero

Page 19


CHAPTER 08—RISK AND RATES OF RETURN

b. Fals
e

ANSWER:

True

POINTS:

1

DIFFICULTY:

MODERATE

REFERENCES:

8-2 Stand-Alone Risk

LEARNING OBJECTIVES: FOFM.BRIG.16.08.02 - Stand-Alone Risk

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Risk prem. and risk aversion

KEYWORDS:

Bloom's: Comprehension

21. A stock's beta measures its diversifiable risk relative to the diversifiable risks of other firms.

a. True

b. Fals

Cengage Learning Testing, Powered by Cognero

Page 20


CHAPTER 08—RISK AND RATES OF RETURN

e

ANSWER:

False

POINTS:

1

DIFFICULTY:

MODERATE

REFERENCES:

8-3 Risk in a Portfolio Context: The CAPM

LEARNING OBJECTIVES: FOFM.BRIG.16.08.03 - Risk in a Portfolio Context: The CAPM

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Beta coefficient

KEYWORDS:

Bloom’s: Knowledge

22. A stock's beta is more relevant as a measure of risk to an investor who holds only one stock than to an investor who
holds a well-diversified portfolio.

a. True

b. Fals

Cengage Learning Testing, Powered by Cognero

Page 21


CHAPTER 08—RISK AND RATES OF RETURN

e

ANSWER:

False

POINTS:

1

DIFFICULTY:

MODERATE

REFERENCES:

8-3 Risk in a Portfolio Context: The CAPM

LEARNING OBJECTIVES: FOFM.BRIG.16.08.03 - Risk in a Portfolio Context: The CAPM

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Beta coefficient

KEYWORDS:

Bloom’s: Knowledge

23. If the returns of two firms are negatively correlated, then one of them must have a negative beta.

a. True

b. Fals
e

Cengage Learning Testing, Powered by Cognero

Page 22


CHAPTER 08—RISK AND RATES OF RETURN

ANSWER:

True

POINTS:

1

DIFFICULTY:

MODERATE

REFERENCES:

8-3 Risk in a Portfolio Context: The CAPM

LEARNING OBJECTIVES: FOFM.BRIG.16.08.03 - Risk in a Portfolio Context: The CAPM

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Beta coefficient

KEYWORDS:

Bloom's: Comprehension

24. A stock with a beta equal to −1.0 has zero systematic (or market) risk.

a. True

b. Fals
e

ANSWER:

False

Cengage Learning Testing, Powered by Cognero

Page 23


CHAPTER 08—RISK AND RATES OF RETURN

POINTS:

1

DIFFICULTY:

MODERATE

REFERENCES:

8-3 Risk in a Portfolio Context: The CAPM

LEARNING OBJECTIVES: FOFM.BRIG.16.08.03 - Risk in a Portfolio Context: The CAPM

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Beta coefficient

KEYWORDS:

Bloom’s: Knowledge

25. It is possible for a firm to have a positive beta, even if the correlation between its returns and those of another firm is
negative.

a. True

b. Fals
e

ANSWER:

True

POINTS:

1

Cengage Learning Testing, Powered by Cognero

Page 24


CHAPTER 08—RISK AND RATES OF RETURN

DIFFICULTY:

MODERATE

REFERENCES:

8-3 Risk in a Portfolio Context: The CAPM

LEARNING OBJECTIVES: FOFM.BRIG.16.08.03 - Risk in a Portfolio Context: The CAPM

NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking

STATE STANDARDS:

United States - OH - DISC.FOFM.BRIG.16.07 - Risk and return

TOPICS:

Beta coefficient

KEYWORDS:

Bloom's: Comprehension

26. Portfolio A has but one security, while Portfolio B has 100 securities. Because of diversification effects, we would
expect Portfolio B to have the lower risk. However, it is possible for Portfolio A to be less risky.

a. True

b. Fals
e

ANSWER:

True

POINTS:

1

Cengage Learning Testing, Powered by Cognero

Page 25