Reference no: EM132721866

Question 1: The market risk premium is computed as: (the average return for the market ________):

a) divided by the average return on long-term government bonds

b) minus the inflation rate

c) plus the inflation rate

d)minus the average return on U.S. Treasury bills

e) plus the average return on U.S. Treasury bills

Question 2: The principle of diversification tells us that:

a) spreading an investment across five diverse firms will not reduce risk at all for an investor.

b) concentrating an investment in only three firms that operate in the same industry will reduce risk for the investor.

c) concentrating an investment in only large-company stocks will eliminate risk for the investor.

d) spreading an investment across many diverse assets will eliminate all of a portfolio's risk.

e) spreading an investment across many diverse assets will lower the risk for an investor.

Question 3: In CAPM, the risk of the market is assigned a value of:

a) standard deviation equals 1.

b) beta equals 0.

c) beta equals 1.

d) variance equals 1.

e) standard deviation equals 0.

Question 4: The primary purpose of portfolio diversification is to:

a) lower both returns and risks.

b) eliminate firm-specific risk.

c) eliminate systematic risk.

d) increase returns and risks.

e) eliminate all risks.