Answer the questions below, if a calculation is needed please provide your solutions:
1. Risk which affect all companies, but to varying degrees are a)diversifiable b)non diversifiable c)total risk d)part a and part b
2. Possible bankruptcy of Pear Fruit Company because of law suits is an example of a)systematic b)non systematic c)total risk d)part a and part b
3. The observation that during a bear market more firms go bankrupt than during a bull market shows default risk is a)systematic b)non systematic c) part a and part b
4. Inflation is considered a)systematic b)non systematic c)total risk
The next three questions are about the Capital Asset Pricing Model Security Market Line equation: E(Rj) = Rf + [E(Rm - Rf] beta
5. The expected return for stock estimated using the capital asset pricing model is the minimum return an investor should receive for
a) non diversifiable or systematic risk
b) diversifiable or unsystematic risk
c) purchasing power risk
d) total risk
6. [E(Rm - Rf] is the a) premium for systematic risk b) premium for unsystematic risk c) amount of systematic risk d) amount of unsystematic risk
7. Betaj company J’s a) premium for systematic risk b) premium for unsystematic risk c) amount of systematic risk d) amount of unsystematic risk
8. The risk-free return is 8% and the market return is 12%. If the company’s beta is 2 the company’s return is expected to be a)16% b)32% c) 40% d)8%
9. A company whose price rises twice as fast as the market and falls twice as fast as the market has a beta of a).5 b)2 c)4 d)6
10. Total risk of a stock is measured by the stock’s a)beta b)correlation c)standard deviation d)return
11. The percent of systematic risk in the total risk is measured by a)beta b)correlation c)standard deviation d)correlation squared.