______ 1. The market risk premium is 15% and the risk-free rate is 5%. The beta of Asset D is 0.2. What is Asset D expected return under the CAPM?(4.0 point) A) 7% B) 20% C) 30% D) 8% ______ 2. If an assets expected return plots above the security market line, the asset is:(3.0 point) A) overpriced B) fairly priced (if it has an unusually large amount of unique risk). C) underpriced D) A and C E) None of the above ______ 3. The beta of the market portfolio is(3.0 point) A) 1.0 B) 0.5 C) 0 D) -1.0 ______ 4. The risk-free rate for the next year is 3%, and the market risk premium is expected to be 10%. The beta of Acme stock is 1.5. If you believe that Acmes stock will actually return 18.2% over the next year, then according to the CAPM you should:(2.0 point) A) sell the stock because it is overpriced B) be indifferent between buying and selling the stock C) buy the stock because it is underpriced D) buy the stock because it is overpriced E) sell the stock because it is underpriced ______ 5. Market risk is also called(2.0 point) A) non-diversifiable risk and systematic risk B) unique risk and non-diversifiable risk C) systematic risk and diversifiable risk D) systematic risk and unique risk E) None ______ 6. To achieve maximum diversification in a two-asset portfolio, investors should choose stocks with correlation of(2.0 point) A) -0.5 B) -1.0 C) +1.0 D) +0.5 E) None ______ 7. Which of the following portfolio construction methods starts with asset allocation? (2.0 point) A) Top-down B) Bottom-up C) Middle-out D) Buy and hold E) Asset allocation ______ 8. Financial assets permit all of the following except ____________. (2.0 point) A) consumption timing B) allocation of risk C) separation of ownership and control D) elimination of risk E) All ______ 9. A fixed-income security pays ____________. (2.0 point) A) a fixed level of income for the life of the owner B) a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security C) a variable level of income for owners on a fixed income D) a fixed or variable income stream at the option of the owner E) None ______ 10. A disadvantage of using stock options to compensate managers is that (2.0 point) A) it encourages mangers to undertake projects that will increase stock price. B) it encourages managers to engage in empire building C) itcancreate an incentiveformangers to manipulate information to prop up a stock price temporarilygiving them achance tocash out beforethe price return D) All E) None ______ 11. Although derivatives can be used as speculative instruments, businesses most often use them to (2.0 point) A) attract customers B) appease stockholders C) offset debt D) hedge E) enhance their balance sheets ______ 12. The means by which individuals hold their claims on real assets in a well-developed economy are (2.0 point) A) investment assets B) depository assets C) derivative assets D) financial assets E) exchange-driven assets ______ 13. Important trends changing the contemporary investment environment are (2.0 point) A) globalization B) securitization C) information and computer networks D) financial engineering E) All ______ 14. Theoretically, takeovers should result in ___________. (2.0 point) A) improved management B) increased stock price C) increased benefits to existing management of taken over firm D) A and B E) A,B and C ______ 15. Investment bankers perform the following role(s) ___________. (2.0 point) A) market new stock and bond issues for firms B) provide advice to the firms as to market conditions, price, etc. C) design securities with desirable properties D) All E) None ______ 16. Corporate shareholders are best protected from incompetent management decisions by(2.0 point) A) the ability to engage in proxy fights B) managements control of pecuniary rewards. C) the ability to call shareholder meetings D) the threat of takeover by other firms. E) one-share / one-vote election rules ______ 17. Financial assets ______. (2.0 point) A) directly contribute to the country’s productive capacity B) indirectly contribute to the country’s productive capacity C) contribute to the country’s productive capacity both directly and indirectly D) do not contribute to the country’s productive capacity either directly or indirectly E) are of no value to anyone ______ 18. Firms that specialize in helping companies raise capital by selling securities are called ________. (2.0 point) A) commercial banks B) investment banks C) savings banks D) credit unions E) All ______ 19. _______ are examples of financial intermediaries. (2.0 point) A) Commercial banks B) Insurance companies C) Investment companies D) Credit unions E) All ______ 20. The value of a derivative security _______. (2.0 point) A) depends on the value of the related security B) can only cause increased risk C) is unrelated to the value of the related security D) has been enhanced due the recent misuse and negative publicity regarding these instruments E) is worthless today ______ 21. The ____________ refers to the potential conflict between management and shareholders due to managements control of pecuniary rewards as well as the possibility of incompetent performance by managers. (2.0 point) A) agency problem B) diversification problem C) liquidity problem D) solvency problem E) regulatory problem ______ 22. An example of a derivative security is ______. (2.0 point) A) a common share of General Motors B) a call option on Mobil stock C) a commodity futures contract D) B and C E) A and B ______ 23. _______ are financial assets(2.0 point) A) Bonds B) Machines C) Stocks D) A and C E) A,B and C