1. Nancy purchased a stock last year and sold it today for $5 a share more than
ID: 2620443 • Letter: 1
Question
1. Nancy purchased a stock last year and sold it today for $5 a share more than her purchase price. She received a total of $1.50 in dividends per share. Which one of the following statements is incorrect in relation to this investment? a) The capital gains yield is negative. b) The dividend yield is lower than the capital gains yield. c) The total dollar return would have been less had Nancy not received the dividends. d) The total dollar return per share is greater than $5. Risk that affects only a single asset or a small number of assets is called a) Idiosyncratic risk b) Diversifiable risk (or unsystematic risk or non-market risk) c) Systematic risk (or non-diversifiable risk or market risk) d) Asset-specific risk 2. The principle of diversification tells us that a) concentrating an investment in two or three large stocks will eliminate all of the 3. unsystematic (or diversifiable or nonmarket) ris b) concentrating an investment in three companies all within the same industry will greatly reduce the systematic (or non-diversifiable or market) risk c) spreading an investment across many diverse assets will eliminate all of the systematic (or non-diversifiable or market) risk d) spreading an investment across many diverse assets will eliminate some of the total risk Which of the following is true regarding the beta coefficient in the Capital Asset Pricing Model (CAPM)? a) It is a measure of unsystematic risk. b) A beta greater than one represents lower systematic risk than the market c) Generally speaking, the higher the beta the higher the expected return. d) A beta of one indicates an asset is totally risk-free.Explanation / Answer
Answer:
1.b.The dividend yield is lower than capital gains yield
because capital gains is $5 per share whereas dividend is only $1.50
2.b.Diversifiable risk ( or unsystemmatic risk or non market risk)
3.d.spreading an investment across many diverse assets will eliminate some of the total risk
4.c.Generally speaking , the higher the beta thr higher the expected return.
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