Finance 301 Final Exam – Practice Questions1.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 ½ 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) 0.8B) 0.5C) -0.4D) 1.5E) -0.15.Using the CAPM, calculate the expected return for Company XYZ:Beta = 0.5Treasury 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 = 1.5T-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 aboveD) 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 relevantnews.11.Which form of market efficiency states that stock prices reflect all information, including private information?A) Weak Form and Semi-Strong Form onlyB) Weak FormC) Strong-FormD) Semi-Strong FormE) 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 onlyB) Strong formC) Weak formD) None of the aboveE) Semi-strong form13.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 pastmovements.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 couponpayments will earn a different rate of return?A) Default riskB) Reinvestment riskC) Prepayment riskD) Interest rate riskE) Systematic risk16.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 XYZB) Stock ABC has more risk than Stock XYZC) Both B and CD) Both A and BE) Stock ABC has a less volatile performance than Stock XYZ17. 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 CB) Stock ABC has lower expected return than Stock XYZC) Both A and BD) Stock ABC has more volatile performance than Stock XYZE) Stock ABC has less risk than Stock XYZ18.Which of the following is true about risk?A) Risk represents the outcomes that are lower than expectedB) Lower standard deviation represents more riskC) Risk and return have an inverse relationshipD) Risk of an asset is measured by the average of the returnsE) The higher the standard deviation of returns, the higher the expected returns19.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