Answer Happy

Name 1. Multiple Choice [2 points each; 20 points total] Page 2 1-1 It is better to hold a portfolio than to hold individual stocks because (a) it is cheap (b) you can diversify away all the risks e) market risk can be dramatically reduced if not eliminated d) forming stocks into a portfolio guarantees a positive real return on investment (e) firm specific risks tend to cancel out with each other in a portfolio a 1-2 The CAPM implies that (a) all portfolios are on the SML (b) only efficient portfolios are on the SML (c) inefficient portfolios are above the SML (d) inefficient portfolios are below the SML (e) none of the above 1-3 Which of the following is true of the Dow Jones Industrial Average? (a) It is a value-weighted average of 30 large industrial stocks. (b) It is an equal-weighted average of 30 large industrial stocks. (c) It is a price-weighted average of 30 large industrial stocks. (d) The divisor must be adjusted for stock splits. (e) (c) and (d) 1-4 You sold ABC stock short at $80 per share. Your losses could be minimized by placing a (a) limit-sell order (b) limit-buy order (c) market-buy order d) stop-buy order (e) market-sell order 1-5 Which one of the following statements regarding closed-end mutual funds is false? (a) The funds redeem shares at net asset value. (b) The funds offer investors professional management. (c) The funds offer diversification benefit. (d) The total number of shares outstanding is fixed. (e) The funds are traded on major stock exchanges 1-6 Which one of the following statements regarding open-end mutual funds is false? (a) The funds redeem shares at net asset value. (b) The funds offer investors professional management. (c) The funds offer diversification benefit. (d) The funds offer investors a guaranteed rate of return. (e) The funds save on transactions costs