Fundamentals of Financial Management, Third Edition

OBJECTIVE-TYPE QUESTIONS

1. Mark true or false.
   1. When the capital market is in equilibrium, required rate of return and expected rate of return are equal.
   2. Systematic risk reduces with diversification of investment within the country.
   3. Unsystematic risk reduces with diversification of investment within the country.
   4. CAPM suggests that total expected return of a security is the sum of risk-free return and its risk premium.
   5. Beta of more than 1 suggests that assets adding to the portfolio systematic risk have high co-variance with the market returns.
   6. Expected return from international investment does not take into account the changes in exchange rate.
2. Choose the most suitable answer.
   1. Uncertainty is a case where:
      1. the decision-maker does not know the ...