Chapter 7 Practice Questions
- 1. Which of the following types of risk will not be lessened within a portfolio through diversification?
- A. Credit risk
- B. Systematic risk
- C. Nonsystematic risk
- D. Liquidity risk
- 2. Which of the following risks is least likely to apply to debt securities?
- A. Purchasing power risk
- B. Interest rate risk
- C. Credit risk
- D. Legislative risk
- 3. A portfolio has a beta of 1.0. The S&P 500 experiences 8% growth, and the portfolio produces an actual return of 6%, with a risk-free rate of 2%. What is the alpha of the portfolio?
- A. 2%
- B. -2%
- C. 1%
- D. -1%
- 4. If a security has a beta of 1.5, which of the following is true?
- A. The security is subject to more systematic risk than a security with a beta of 1.0.
- B. The security is subject to less nonsystematic risk than the security with a beta of 1.0.
- C. If the security had a market price of $10 at the beginning of the year, and the market returned 10% over the year, we can expect that the stock will now be priced at $15.
- D. It will outperform a security with a beta of 1.0
- 5. Which of the following is not true of passive and active investment strategies?
- A. Passive investment strategies are usually lower cost than active investment strategies.
- B. Passive investment strategies are usually more tax-efficient than active investment strategies.
- C. Technical analysis is considered passive investing strategy, while fundamental analysis is considered an active investing strategy.
- D. Strategic asset allocation is considered a passive investment strategy, while tactical asset analysis is considered an active investment strategy.
- 6. Which of the following would you not expect from someone with an income strategy?
- A. Investment in a rental building
- B. Investment in corporate bonds