EBF 401 EBF401 Quiz 2 with Answers (Penn State University)

EBF 401 EBF401 Quiz 2 with Answers (Penn State University)

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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.


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