EBF 401 EBF401 Quiz 2 with Answers (Penn State University)
EBF 401 EBF401 Quiz 2 Answers (Penn State University)
1. The financial statement showing a firm’s accounting value on a particular date is the:
a. Income statement;
b. Balance sheet;
c. Statement of cash flows;
d. Tax reconciliation statement;
e. Shareholders’ equity sheet.
2. The percentage of a portfolio’s total value invested in a particular asset is called that asset’s:
a. Portfolio return;
b. Portfolio weight;
c. Portfolio risk;
d. Rate of return;
e. Investment value.
3. A risk that affects a large number of assets, each to a greater or lesser degree, is called risk:
a. Idiosyncratic;
b. Diversifiable;
c. Systematic;
d. Asset-specific;
e. Total.
4. A risk that affects at most a small number of assets is called risk:
a. Portfolio;
b. Non-diversifiable;
c. Asset-specific;
d. Unsystematic;
e. Total.
5. The principle of diversification tells us that:
a. Concentrating an investment in ten companies (all within the same industry) will greatly reduce your overall risk;
b. Spreading an investment across five diverse companies will not lower your overall risk at all;
c. Investing in many diverse assets decreases systematic risk;
d. Spreading an investment across many diverse assets will eliminate all of the risk;
e. Spreading an investment across many diverse assets will eliminate some of the risk.
6. The linear relation between an asset’s expected return and its beta coefficient is the:
a. Reward-to-risk ratio;
b. Characteristic line;
c. Portfolio risk;
d. Security market line;
e. Market risk premium.
7. The slope of an asset’s security market line is the:
a. Reward-to-risk ratio;
b. Portfolio weight;
c. Beta coefficient;
d. Risk-free interest rate;
e. Market risk premium.
8. Which of the following are included in current assets?
I. Equipment;
II. Inventory;
III. Accounts payable;
IIII. Cash.
a. II and IV only;
b. I and III only;
c. I, II and IV only;
d. III and IV only;
e. II, III and IV only.
9. The risk premium for an individual security is calculated by:
a. Multiplying the security’s beta by the market risk premium;
b. Multiplying the security’s beta by the risk-free rate of return;
c. Adding the risk-free rate to the security’s expected return;
d. Dividing the market risk premium by the quantity (1-beta);
e. Dividing the market risk premium by the beta of the security.
10. Define diversification.
