1. What are the components of the risk premium?
    • Business risk
    • Exchange rate risk
    • Financial Risk
    • Liquidity Risk
    • Exchange rate risk
  2. The ability to sell an asset quickly at a fair price is associated with?
    Liquidity Risk
  3. The variability of operating earnings is associated with?
    Business risk.
  4. The uncertainty of investment returns associated with how a firm finances its investments is known as?
    Financial Risk.
  5. What will happen to the security market line (SML) if the following events occur, other things constant: (1) inflation expectations increase, and (2) investors become more risk averse?
    Shift up and have a steeper slope
  6. A decrease in the market risk premium, all other things constant, will cause the security market line to?
    Have a flatter slope
  7. Assume you bought 100 shares of New Tech common stock on January 15, 2003 at $50.00 per share and sold it on January 15, 2004 for $40.00 per share. What was your holding period yield?
    HPR = (40/50) - 1 = -20%
  8. In a price weighted average stock market indicator index, the following type of stock has the
    greatest influence?
    The stock with the highest price
  9. What effect does a stock substitution or stock split have on a price-weighted index?
    Index remains the same, divisor will increase/decrease.
  10. What is not a value-weighted index?
    Dow Jones Industrial Average
  11. An example of a value weighted stock market indicator index is the?
    S & P 500 Index.
  12. In a value weighted index?
    Large companies have a disproportionate influence on the index.
  13. What is the most comprehensive list of stocks?
    Wilshire Equity Index
  14. What is not a global equity indicator series?
    Merrill Lynch-Wilshire World Indexes
  15. The Ryan Treasury Index is an example of a?
    Bond market indicator series.
  16. What makes it difficult to create and maintain a bond index?
    • The universe of bonds is broader than stocks.
    • The universe of bonds is constantly changing due to new issues, bond maturities, calls, and bond sinking funds.
    • It is difficult to derive value, up-to-date prices.
  17. Examples of Style Indexes?
    • Small-cap growth
    • Mid-cap value
    • Small-cap value
  18. Studies of correlations among monthly U.S. bond price index returns have found?
    Low correlations between investment grade bonds and high yield bonds.
  19. In a two-stock portfolio, if the correlation coefficient between two stocks were to decrease over
    time every thing else remaining constant the portfolio's risk would?
  20. Given a portfolio of stocks, the envelope curve containing the set of best possible combinations is
    known as the?
    Efficient frontier
  21. A portfolio is considered to be efficient if?
    • No other portfolio offers higher expected returns with the same risk.
    • No other portfolio offers lower risk with the same expected return.
  22. The optimal portfolio is identified at the point of tangency between the efficient frontier and the?
    Highest possible utility curve.
  23. An individual investor's utility curves specify the tradeoffs he or she is willing to make between?
    Return and risk.
  24. As the correlation coefficient between two assets decreases, the shape of the efficient frontier?
    Bends in.
  25. A positive covariance between two variables indicates that?
    The two variables move in the same direction.
  26. A positive relationship between expected return and expected risk is consistent with?
    Investors being risk averse.
Card Set
First Test