21.
A portfolio's total risk is the combination of:
A
Systematic risk and portfolio risk
B
Unsystematic risk and total risk
C
Systematic risk and unsystematic risk
D
Market risk and specific risk
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A portfolio's total risk is the combination of:
Systematic risk and portfolio risk
Unsystematic risk and total risk
Systematic risk and unsystematic risk
Market risk and specific risk
Which of the following is true about the Security Market Line (SML)?
It represents the risk-return tradeoff
It is the same as the CML
It shows the market rate of return
It represents a diversified portfolio
The systematic risk of a portfolio is determined by:
The correlation of the assets
The beta of the portfolio
The diversification of the portfolio
The standard deviation of the portfolio
A higher beta value in a stock indicates:
Higher risk than the market
Lower risk than the market
No risk
Equal risk to the market
The market risk premium is the difference between:
The expected return and the risk-free rate
The risk-free rate and the market rate
The market return and the stock return
The risk-free rate and the bond return
In the CAPM, the market portfolio consists of:
All risky assets in the economy
A few selected stocks
Only government securities
Only stocks with the highest returns
The Capital Asset Pricing Model (CAPM) assumes that investors are:
Risk-averse
Risk-neutral
Risk-loving
Risk-seeking
Which of the following is NOT a factor that affects systematic risk?
Interest rates
Market liquidity
Inflation rate
Natural disasters
What is the relationship between risk and return?
No relationship
Positive relationship
Negative relationship
Uncertain relationship
The concept of "systematic risk" is:
Risk that can be avoided through diversification
Risk due to company-specific factors
Risk affecting the whole market
Risk that cannot be diversified
The Efficient Frontier represents:
A line of portfolios with minimum risk
A curve of portfolios offering the best trade-off between risk and return
The market portfolio
The risk-free portfolio
A stock with a beta of 1 means:
It is less volatile than the market
It has no volatility
It is more volatile than the market
Its returns move in sync with the market
What is the main advantage of a well-diversified portfolio?
It increases returns
It eliminates unsystematic risk
It guarantees a risk-free return
It offers the highest return
Which of the following is NOT an assumption of the CAPM?
Investors are rational
There are no taxes
Capital markets are perfect
Risk is non-existent
The risk premium is:
The return on a risk-free asset
The return on an average asset
The return over and above the risk-free rate
The risk of the portfolio
Which of the following is true about diversification?
It eliminates systematic risk
It only reduces total risk
It eliminates all types of risk
It can reduce unsystematic risk
The expected return of an asset is:
Always equal to the risk-free rate
The weighted average of possible returns
The highest return on the market
The actual return
Which of the following is an example of unsystematic risk?
Market crash
Inflation rate change
Labor strike at a company
Exchange rate fluctuation
In the Capital Market Line (CML), the slope represents:
Market risk
Risk-free rate
Sharpe ratio
Market return
What is the definition of risk in finance?
Possibility of loss
Ability to generate return
Both A and B
Uncertainty of future returns