Financial Management - Study Mode

[#711] Of all stocks in a portfolio, required rate of return is classified as
Correct Answer

(D) market portfolio

Explanation

Solution: Of all stocks in a portfolio, required rate of return is classified as market portfolio. A market portfolio is a theoretical bundle of investments that includes every type of asset available in the world financial market, with each asset weighted in proportion to its total presence in the market.

[#712] Risk in average individual stock can be reduced by placing an individual stock in
Correct Answer

(B) diversified portfolio

Explanation

Solution: Risk in average individual stock can be reduced by placing an individual stock in diversified portfolio. A diversified investment is a portfolio of various assets that earns the highest return for the least risk. A typical diversified portfolio has a mixture of stocks, fixed income, and commodities.

[#713] Required return is 15% and premium for risk is 11% then risk free return would be
Correct Answer

(B) 4.00%

Explanation

Solution: Risk free return = Required return - Premium for risk = 15% - 11% = 4%.

[#714] Market required return is subtracted from risk free rate which is used to calculate
Correct Answer

(B) market risk premium

Explanation

Solution: Market required return is subtracted from risk free rate which is used to calculate market risk premium. The market risk premium is the difference between the expected return on a market portfolio and the risk-free rate. The market risk premium is equal to the slope of the security market line (SML), a graphical representation of the capital asset pricing model (CAPM).

[#715] Document in a corporation which consists of amount of stock, name and addresses of directors is classified as
Correct Answer

(D) charter

Explanation

Solution: Document in a corporation which consists of amount of stock, name and addresses of directors is classified as charter. A charter plane or boat is one which is hired for use by a particular person or group and which is not part of a regular service.