Finance 301 Final Exam Practice Questions 1 Below are the standard deviations of company stock prices throughout the year Which one is the most risky A Company 2 Standard deviation 28 B Company 1 Standard deviation 34 C Company 3 Standard deviation 8 D Company 4 Standard deviation 17 E Company 5 Standard deviation 23 2 Below are the standard deviations of company stock prices throughout the year Which one is the least risky A Company 5 Standard deviation 58 B Company 3 Standard deviation 12 C Company 1 Standard deviation 47 D Company 2 Standard deviation 18 E Company 4 Standard deviation 34 3 If a stock has a beta of 0 5 what can one infer about the expectations of that stock relative to the market A The stock s expected return is equal to that of the market B The stock will tend to double market movements both up and down C The stock s expected return is twice that of the market D The stock is as risky as the market E The stock will tend to have movements equal to the market 4 Estimate the beta for the stock given the following information Year 1 Stock return 6 0 Market return 4 0 Year 2 Stock return 8 0 Market return 5 35 A 0 8 B 0 5 C 0 4 D 1 5 E 0 1 5 Using the CAPM calculate the expected return for Company XYZ Beta 0 5 Treasury Bill Rate 3 5 S P 500 averaged return rate 10 A 3 0 B 8 50 C 6 75 D 8 25 E 6 50 6 Given the following information calculate the alpha of the portfolio Beta 1 5 T Bills Rate 3 0 S P 500 averaged return rate 10 Actual Return on the Portfolio 13 A 0 5 B 2 0 C 3 0 D 0 5 E 2 0 7 Which of the following is true concerning the alpha of a portfolio A If a stock s alpha is above the risk return line the stock performed worse than expected B A negative alpha is desirable C A positive alpha is a sign of poor performance D Alpha is a measure of how a stock performed relative to its expected performance E If a stock s alpha falls below the risk return line the stock performed better than expected 8 Which of the following is true concerning the alpha of a portfolio A Alpha is always positive for any stock B Stocks that perform worse than their expected return will have a negative alpha C If a stock s alpha falls below the risk return line the stock performed better than expected D If a stock s alpha is above the risk return line the stock performed worse than expected E A positive alpha is a sign of poor performance 9 In an efficient market how do stocks respond to publicly available news A A stock s response depends on the previous day s performance B Stocks do not respond to news C None of the above D Stocks immediately respond to publicly available news E Stocks respond by gradually adjusting to the news in the market 10 Which of the following scenarios is an example of efficient markets A Markets are efficient when information is not fully reflected in stock prices B Markets are efficient when stock prices react slowly to new information C Markets are efficient when trading opportunities are abundant D Markets are efficient when bond prices increase with an interest rate increase E Markets are efficient when stock prices respond immediately to relevant news 11 Which form of market efficiency states that stock prices reflect all information including private information A Weak Form and Semi Strong Form only B Weak Form C Strong Form D Semi Strong Form E None of the above 12 Which form of market efficiency states that stock prices reflect the information contained in the history of past stock prices and trading volume A Both semi strong and strong form only B Strong form C Weak form D None of the above E Semi strong form 13 According to the Random Walk Hypothesis in efficient markets A There is a predictable trend in stock prices B Stock prices are not random and they can be predicted by past movements C Stock prices are random and cannot be predicted solely on the basis of past movements D Stock prices can be predicted solely on the basis of past movements E Stock prices are not random 14 According to the Random Walk Hypothesis in efficient markets A Technical Analysis is a valid method to determine future stock prices B There are predictable stock trends in efficient markets based on past performance C Past historical data can be used to predict future share prices D Share prices react immediately to news and share price changes are random E Beta is a risk that can be eliminated through diversification 15 Which of the following is the risk that income earned from a bond s coupon payments will earn a different rate of return A Default risk B Reinvestment risk C Prepayment risk D Interest rate risk E Systematic risk 16 Given the following information select the true statement Stock ABC Beta 0 4 Average return 8 Stock XYZ Beta 1 2 Average return 8 A Stock ABC has a higher expected return than Stock XYZ B Stock ABC has more risk than Stock XYZ C Both B and C D Both A and B E Stock ABC has a less volatile performance than Stock XYZ 17 Given the following information select the true statement Stock ABC Beta 1 7 Average return 12 Stock XYZ Beta 0 8 Average return 12 A Both B and C B Stock ABC has lower expected return than Stock XYZ C Both A and B D Stock ABC has more volatile performance than Stock XYZ E Stock ABC has less risk than Stock XYZ 18 Which of the following is true about risk A Risk represents the outcomes that are lower than expected B Lower standard deviation represents more risk C Risk and return have an inverse relationship D Risk of an asset is measured by the average of the returns E The higher the standard deviation of returns the higher the expected returns 19 Which of the following is true of bonds A Bonds are an equity investment B Bonds issue repayment of principal at their maturity C Bonds repay the principal to the investor in semi annual payments only D Bonds are only issued by governments and municipalities E Bonds don t have default risk 20 Which of the following is true concerning the difference between systematic and unsystematic risk A Unsystematic risk cannot be diversified away but systematic risk can be B Both systematic and unsystematic risks are market related risks C Unsystematic risk is firm specific risk whereas systematic risk is market risk D Beta is the measure of unsystematic risk There is no measure of systematic risk E Systematic and unsystematic risk both measure company specific risk 21 An upward sloping yield curve means …