Question 8 The covariance of rates of return on two securities is most accurately described as the correlation of the asset returns:
A. divided by the product of the assets’ standard deviations of returns.
B. multiplied by the product of the assets’ variances of returns.
C. multiplied by the product of the assets’ standard deviations of returns.
D. divided by the product of the assets’ variances of returns.
Question 4 The term structure of interest rate theory that says long-term maturities have greater market risk than shorter maturities is called the:
A. market segmentation theory.
B. preferred habitat theory.
C. liquidity preference theory.
D. pure expectations theory.
Question 7 An investor believes Stock M will rise from a current price of $20 per share to
A. No, because it is undervalued.
B. Yes, because it is overvalued.
C. No, because it is overvalued.
D. Yes, because it is undervalued.
Question 6 Capital market theory is least likely to assume that:
A. investors can lend any amount of money at the risk-free rate.
B. all investors desire to be the same location on the efficient frontier.
C. all investors have the same one-period time horizon.
D. it is possible to buy or sell fractional shares of an investment.
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