Question:

The market risk, beta, of a security is equal to

A.

the covariance between the security’s return and the market return divided by the variance of the market’s returns.

B.

the covariance between the security and market returns divided by the standard deviation of the market’s returns.

C.

the variance of the security’s returns divided by the covariance between the security and market returns.

D.

the variance of the security’s returns divided by the variance of the market’s returns.

Answer» a. the covariance between the security’s return and the market return divided by the variance of the market’s returns.

Question:

Municipal government debt

A.

pays more interest than corporate debt

B.

is often purchased by individuals with high incomes

C.

is exempt from estate taxation

D.

is not subject to interest rate risk

Answer» b. is often purchased by individuals with high incomes

Question:

Serials bonds are

A.

Large bond issues carrying fixed maturity date

B.

Small bond issues carrying many maturity dates.

C.

Small bond issues carrying single maturity date.

D.

Large bond issues carrying many maturity dates.

Answer» b. Small bond issues carrying many maturity dates.

Question:

Which of the following is not a form of real asset?

A.

Rare paintings

B.

Baseball cards

C.

Diamonds

D.

Real estate

Answer» b. Baseball cards

Question:

Aggressive portfolio consists of bonds: stock in the ratio of

A.

60:40

B.

70:30

C.

40:60

D.

50:50

Answer» c. 40:60

Question:

The investor of a high-yielding utility can expect

A.

Slow growth in earnings

B.

Slow growth in the stock price

C.

Slow growth in the stock price with a fast growth in earnings

D.

Both a and b

Answer» d. Both a and b

Question:

In the stock-price beta estimation for the Coca-Cola Company, the independent variable is the:

A.

value of the S&P 500 Index.

B.

return on the S&P 500.

C.

return on Coca-Cola.

D.

price of Coca-Cola stock.

Answer» d. price of Coca-Cola stock.

Question:

Financial leverage may increase a corporation’s risk because

A.

operating income may stabilize

B.

the firm has fixed obligations to meet

C.

more common stock is outstanding

D.

dividends must be paid

Answer» b. the firm has fixed obligations to meet

Question:

Standard deviation and beta both measure risk, but they are different in that

A.

beta measures both systematic and unsystematic risk.

B.

beta measures only systematic risk while standard deviation is a measure of total risk.

C.

beta measures only unsystematic risk while standard deviation is a measure of total risk.

D.

beta measures both systematic and unsystematic risk while standard deviation measures only systematic risk.

Answer» b. beta measures only systematic risk while standard deviation is a measure of total risk.

Question:

The market price of a bond depends on the

A.

coupon rate, and terms of the indenture

B.

coupon rate, and maturity date

C.

terms of the indenture, and maturity date

D.

coupon rate, terms of the indenture, and maturity date

Answer» d. coupon rate, terms of the indenture, and maturity date