Identifying Systematic Risk Examples.

1. Which of the following is an example of systematic risk? IBM posts lower than expected earnings. Intel announces record earnings. The national trade deficit is higher than expected. None of the above.

2. Which of the following is an example of unsystematic risk? IBM posts lower than expected earnings. The Fed raises interest rates unexpectedly. The rate of inflation is higher than expected. None of the above.

3. What do you call the portion of your total return on a stock investment that is caused by an increase in the value of the stock.

Dividend yield. Risk-free return.

Capital gain. None of the above.

4. What is one of the most important lessons from capital market history? Risk does not matter. There is a positive relationship between risk and return. You are always better off investing in stock. T-bills are the highest yielding investment. 5. What is the purpose of diversification? Maximize possible returns. Increase the risk of your portfolio.

Lower the overall risk of your portfolio. None of the above. 6. The risk-free rate is 5% and the expected return on the market portfolio is 13%. A stock has a beta of 1. 5, what is its expected return? 7% 12% 19. 5% 24. 5% 7. The risk-free rate is 5% and the expected return on the market portfolio is 13%. A stock has a beta of 0, what is its expected return? 0% 5% 13% none of the above 8. According to the CAPM (capital asset pricing model), the security market line is a straight line. The intercept of this line should be equal to (Points: 1)        zero the expected risk premium on the market portfolio        the risk-free rate the expected return on the market portfolio 9.

According to the CAPM (capital asset pricing model), the security market line is a straight line.

The slope of this line should be equal to zero the expected risk premium on the market portfolio the risk-free rate the expected return on the market portfolio 10. A particular asset has a beta of 1. 2 and an expected return of 10%. The expected return on the market portfolio is 13% and the risk-free is 5%. Which of the following statement is correct? This asset lies on the security market line. This asset lies above the security market line. This asset lies below the security market line. Cannot tell from the given information.