HLST 3250 Midterm: HLST 3250 Test 2 Cheat Sheet
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QUESTION 18
- Diversification refers to the _____.
A. | reduction of the stand-alone risk of an individual investment,measured by the standard deviation of its returns, by combining itwith other investments in a portfolio | |
B. | reduction of the systematic risk of an individual investment,measured by the standard deviation of its returns, by combining itwith other investments in a portfolio | |
C. | reduction of the systematic risk of an individual investment,measured by its beta coefficient, by combining it with otherinvestments in a portfolio | |
D. | reduction of the stand-alone risk of an individual investment,measured by its beta coefficient, by combining it with otherinvestments in a portfolio | |
E. | reduction of the unsystematic risk of an individual investment,measured by its coefficient of variation, by combining it withother investments in a portfolio |
QUESTION 19
- Which of the following statements is true about capitalbudgeting analysis?
A. | Higher discount rates are used for computing the net presentvalues (NPVs) of riskier cash flows. | |
B. | The payback period method should be used for capital budgetingdecisions if the project has multiple cash outflows. | |
C. | The payback period method should be used for capital budgetingdecisions if there is a conflict in the project rankings as per theNPV method and the IRR method. | |
D. | The net present value (NPV) method should be used to evaluateindependent projects, and the internal rate of return (IRR) methodfor mutually exclusive projects. | |
E. | A project with only cash outflows and no cash inflows would havetwo internal rates of return (IRRs). |
5 points
QUESTION 20
- Other things held constant, if the investors become less riskaverse, the new security market line (SML) would _____.
A. | not be affected | |
B. | shift down | |
C. | shift up | |
D. | have a steeper slope | |
E. | have a less steep slope |