43) You must add one of two investments to an already well-
diversified portfolio.

Security A Security B
Expected Return = 14% Expected Return = 14%
Standard Deviation of Standard Deviation of
Returns = 15.8% Returns = 19.7%
Beta = 1.8 Beta = 1.5

If you are a risk-averse investor, which one is the better
choice?
A) Security A
B) Security B
C) Either security would be acceptable.
D) cannot be determined with information given

44) Beginning with an investment in one company’s
securities, as we add securities of other companies to our portfolio, which
type of risk declines?
A) systematic risk
B) market risk
C) non-diversifiable risk
D) unsystematic risk

45) Assume that you expect to hold a $40,000 investment for
one year. It is forecasted to have a year end value of $42,000 with a 30%
probability; a year end value of $48,000 with a 45% probability; and a year end
value of $60,000 with a 25% probability. What is the expected holding period
return for this investment?
A) 50%
B) 25%
C) 23%
D) 18%

46) Assume that you expect to hold a $20,000 investment for
one year. It is forecasted to have a year end value of $21,000 with a 30%
probability; a year end value of $24,000 with a 45% probability; and a year end
value of $30,000 with a 25% probability. What is the standard deviation of the
holding period return for this investment?
A) 12.06%
B) 14.36%
C) 16.36%
D) 33.45%

47) You must add one of two investments to an already well-
diversified portfolio.

Security A Security B
Expected Return = 14% Expected Return = 12%
Standard Deviation of Standard Deviation of
Returns = 15.0% Returns = 11%
Beta = 1.5 Beta = 1.5

If you are a risk-averse investor, which one is the better
choice?
A) Security A
B) Security B
C) Either security would be acceptable.
D) cannot be determined with information given

48) Portfolio risk is typically measured by ________ while
the risk of a single investment is measured by ________.
A) standard deviation; beta
B) security market line; standard deviation
C) beta; standard deviation
D) beta; slope of the characteristic line

49) How can investors reduce the risk associated with an
investment portfolio without having to accept a lower expected return?
A) Wait until the stock market rises.
B) Increase the amount of money invested in the portfolio.
C) Purchase a variety of securities; i.e., diversify.
D) Purchase stocks that have exceptionally high standard
deviations.

50) Which of the following types of risk is diversifiable?
A) unsystematic, or company-unique risk
B) betagenic, or ecocentric risk
C) systematic risk
D) market risk

51) You purchased 500 shares of A.M.J. Inc. common stock
one year ago for $50 per share. You received a dividend of $2 per share today
and decide to take your profits by selling at $54.50 per share. What is your
holding period return?
A) 13.0%
B) 9.0%
C) 6.5%
D) 4.0%

52) Which of the following measures the average relationship
between a stock’s returns and the market’s returns?
A) coefficient of validation
B) standard deviation
C) geometric regression
D) beta coefficient