Flashcards in Investment Exam 2 Deck (34):

1

## during the 1926-2010 period the geometric mean return on small firm stock was

### 11.80%

2

## during the 1926-2010 period the geometric mean return on Treasury bonds was

### 5.12%

3

## during the 1926-2010 period the Sharpe ratio was greatest for

### large US stocks

4

## during the 1926-2010 period the Sharpe ratio was lowest for

### Long-term US treasury bonds

5

## during the 1926-2010 which provided the lowest real return

### Long-term US treasury bonds

6

## over the long run which of the following assets has the best chance to provide the best after-inflation, after-tax rate of return

### common stock

7

## what statistic cannot be negative

### variance

8

## the correlation coefficient between two assets equals

### their covariance divided by the product of their standard deviations

9

## beta is a measure of security responsiveness to

### market risk

10

## market risk is also called what? (2)

###
systematic risk

nondiversifiable risk

11

## firm specific risk is also called what (2)

###
unique risk

diversifiable risk

12

## Harry Markowitz best known for

### techniques used to identify efficient portfolios of risk assets

13

## the difference between the rate of return earned and the risk free rate

### excess return

14

## diversification can reduce or eliminate ___ risk

### nonsystematic

15

## If an investor does not diversify his portfolio and instead puts all of his money in one stock, the appropriate measure of security risk for that investor is the

### stocks standard deviation

16

## corr. coeff. will produce most diversification benefits is the ____ number

### lowest

17

## corr. coeff. will produce least diversification benefits is the ____ number

### highest

18

## Investing in two assets with a correlation coefficient of -.5 will reduce what kind of risk?

### unique risk

19

## Investing in two assets with a correlation coefficient of 1 will reduce which kind of risk?

### no risk

20

## The capital asset pricing model was developed by _________.

### william sharpe

21

## arbitrage pricing theory developed by

### stephen ross

22

## According to the capital asset pricing model, a security with a positive alpha is considered

### underpriced

23

## Investors require a risk premium as compensation for bearing ____ risk

### systematic

24

## a stocks alpha measures the stock's

### abnormal return

25

## weak form of EMH states what must be reflected in current stock price:

### all past information, including security price and volume data

26

## semistrong form of EMH states what must be reflected in current stock price

### all publicly available information

27

## strong form of EMH states what must be reflected in current stock price

### all information, including inside information

28

## when the market risk premium rises, stock prices will

### fall

29

## stock price behavior: ___-run momentum; ____-run reversal patterns

### short-run; long-run

30

## Choosing stocks by searching for predictable patterns in stock prices is called

### technical analysis

31

## Basu found that firms with high P/E ratios earned ____ average returns than firm with low P/E ratios

### lower

32

## price behavior that differs from the behavior predicted by the efficient market hypothesis

### market anomaly

33

## Value stocks usually exhibit ______ price-to-book ratios and ______ price-to-earnings ratios

### low; low

34