Question 1

Based on the capital asset pricing model, which one of the following must increase the expected return on an individual security, all else held constant?

Accepted Answer

A)  An increase in the risk level of that security as measured by standard deviation
B)  An increase in the risk-free rate given a security beta of 1.42
C)  A decrease in the market rate of return given a security beta of 1.13
D)  A decrease in the market rate of return given a security beta of .78
E)  A decrease in the risk-free rate given a security beta of 1.06F) C) and D)
G) A) and E)

Question 2

Which one of the following is the minimum required rate of return on a new investment that makes that investment attractive?

Accepted Answer

A)  Risk-free rate
B)  Market risk premium
C)  Expected return minus the risk-free rate
D)  Market rate of return
E)  Cost of capitalF) None of the above
G) A) and D)

Question 3

Stock J has a beta of 1.52 and an expected return of 15.76percent.Stock K has a beta of .98 and an expected return of 11.44 percent.What is the risk-free rate if these securities both plot on the security market line?

Accepted Answer

A)  3.60 percent
B)  3.34 percent
C)  3.57 percent
D)  3.52 percent
E)  3.64 percentF) A) and C)
G) A) and D)

Question 4

The beta of a risky portfolio cannot be less than _____ nor greater than ____.

Accepted Answer

A)  0; 1
B)  1; the market beta
C)  the lowest individual beta in the portfolio; market beta
D)  the market beta; the highest individual beta in the portfolio
E)  the lowest individual beta in the portfolio; the highest individual beta in the portfolioF) A) and D)
G) A) and B)

Question 5

You would like to create a portfolio that is equally invested in a risk-free asset and two stocks.One stock has a beta of 1.39.What does the beta of the second stock have to be if you want the portfolio to be equally as risky as the overall market?

Accepted Answer

A)  .72
B)  .97
C)  1.23
D)  1.55
E)  1.61F) A) and B)
G) B) and E)

Question 6

Sarina Stable Supply stock has a risk premium of 6.2 percent while the inflation rate is 1.7 percent and the risk-free rate is 3.1 percent.What is the expected return on this stock?

Accepted Answer

A)  10.2 percent
B)  7.63 percent
C)  9.3 percent
D)  10.9 percent
E)  12.4 percentF) B) and E)
G) B) and C)

Question 7

Crabby Shores stock is expected to return 15.7 percent in a booming economy, 9.8 percent in a normal economy, and 2.3 percent in a recession.The probabilities of an economic boom, normal state, or recession are 15 percent, 73 percent, and 12 percent, respectively.What is the expected rate of return on this stock?

Accepted Answer

A)  10.07 percent
B)  10.74 percent
C)  10.61 percent
D)  9.79 percent
E)  8.68 percentF) A) and C)
G) C) and D)

Question 8

Bass Clef Music Stores' stock has a risk premium of 7 percent while the inflation rate is 1.9 percent and the risk-free rate is 2.2 percent.What is the expected return on this stock?

Accepted Answer

A)  10.9 percent
B)  7.3 percent
C)  9.2 percent
D)  10.8 percent
E)  12.3 percentF) C) and D)
G) None of the above

Question 9

Which term best refers to the practice of investing in a variety of diverse assets as a means of reducing risk?

Accepted Answer

A)  Systematic
B)  Unsystematic
C)  Diversification
D)  Security market line
E)  Capital asset pricing modelF) B) and D)
G) A) and B)

Question 10

You own a $58,600 portfolio comprised of four stocks.The values of Stocks A, B, and C are $11,200, $17,400, and $20,400, respectively.What is the portfolio weight of Stock D?

Accepted Answer

A)  16.38 percent
B)  15.39 percent
C)  10.33 percent
D)  12.10 percent
E)  12.58 percentF) D) and E)
G) A) and B)

Question 11

The stock of Wiley United has a beta of .98.The market risk premium is 7.6 percent and the risk-free rate is 3.9 percent.What is the expected return on this stock?

Accepted Answer

A)  7.53 percent
B)  7.69 percent
C)  11.35 percent
D)  11.52 percent
E)  12.01 percentF) A) and E)
G) A) and D)

Question 12

BJB stock has an expected return of 17.82 percent.The risk-free rate is 4.6 percent and the market risk premium is 8.2 percent.What is the stock's beta?

Accepted Answer

A)  1.47
B)  1.51
C)  1.61
D)  1.48
E)  1.68F) B) and C)
G) A) and C)

Question 13

A stock has a beta of 1.48 and an expected return of 17.3 percent.A risk-free asset currently earns 4.6 percent.If a portfolio of the two assets has a beta of .98, then the weight of the stock must be ___ and the risk-free weight must be___.

Accepted Answer

A)  .56; .44
B)  .34; .66
C)  .44; .56
D)  .66; .34
E)  .72; .28F) D) and E)
G) A) and C)

Question 14

You currently own a portfolio valued at $52,000 that has a beta of 1.16.You have another $10,000 to invest and would like to invest it in a manner such that the portfolio beta decreases to 1.15.What does the beta of the new investment have to be?

Accepted Answer

A)  1.098
B)  .889
C)  .869
D)  .924
E)  1.125F) B) and E)
G) B) and D)

Question 15

Stock J has a beta of 1.06 and an expected return of 12.3 percent, while Stock K has a beta of .74 and an expected return of 6.7 percent.If you create portfolio with the same risk as the market, what rate of return should you expect to earn?

Accepted Answer

A)  10.67 percent
B)  11.18 percent
C)  11.62 percent
D)  11.25 percent
E)  11.13 percentF) A) and D)
G) C) and D)

Question 16

Stock A comprises 28 percent of Susan's portfolio.Which one of the following terms applies to the 28 percent?

Accepted Answer

A)  Portfolio variance
B)  Portfolio standard deviation
C)  Portfolio weight
D)  Portfolio expected return
E)  Portfolio betaF) A) and B)
G) A) and C)

Question 17

The addition of a risky security to a fully diversified portfolio:

Accepted Answer

A)  must decrease the portfolio's expected return.
B)  must increase the portfolio beta.
C)  may or may not affect the portfolio beta.
D)  will increase the unsystematic risk of the portfolio.
E)  will have no effect on the portfolio beta or its expected return.F) A) and B)
G) A) and E)

Question 18

Currently, the risk-free rate is 3.2 percent.Stock A has an expected return of 11.4 percent and a beta of 1.11.Stock B has an expected return of 13.7 percent.The stocks have equal reward-to-risk ratios.What is the beta of Stock B?

Accepted Answer

A)  1.27
B)  1.33
C)  1.36
D)  1.08
E)  1.42F) A) and D)
G) None of the above

Question 19

Unsystematic risk can be defined by all of the following except:

Accepted Answer

A)  unrewarded risk.
B)  diversifiable risk.
C)  market risk.
D)  unique risk.
E)  asset-specific risk.F) B) and D)
G) C) and D)

Question 20

A stock has a beta of 1.04, the expected return on the market is 11.75, and the risk-free rate is 3.75.What must the expected return on this stock be?

Accepted Answer

A)  9.89 percent 
B)  38.32 percent
C)  13.56 percent
D)  19.16 percent
E)  12.07 percentF) B) and D)
G) D) and E)

Exam 11: Risk and Return

Correct Answer
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Stock J has a beta of 1.06 and an expected return of 12.3 percent, while Stock K has a beta of .74 and an expected return of 6.7 percent.If you create portfolio with the same risk as the market, what rate of return should you expect to earn?

Correct Answer
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Which term best refers to the practice of investing in a variety of diverse assets as a means of reducing risk?

Correct Answer
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Currently, the risk-free rate is 3.2 percent.Stock A has an expected return of 11.4 percent and a beta of 1.11.Stock B has an expected return of 13.7 percent.The stocks have equal reward-to-risk ratios.What is the beta of Stock B?

Correct Answer
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You would like to create a portfolio that is equally invested in a risk-free asset and two stocks.One stock has a beta of 1.39.What does the beta of the second stock have to be if you want the portfolio to be equally as risky as the overall market?

Correct Answer
verified

You currently own a portfolio valued at $52,000 that has a beta of 1.16.You have another $10,000 to invest and would like to invest it in a manner such that the portfolio beta decreases to 1.15.What does the beta of the new investment have to be?

Correct Answer
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Which one of the following is the minimum required rate of return on a new investment that makes that investment attractive?

Correct Answer
verified

Sarina Stable Supply stock has a risk premium of 6.2 percent while the inflation rate is 1.7 percent and the risk-free rate is 3.1 percent.What is the expected return on this stock?

Correct Answer
verified

Stock A comprises 28 percent of Susan's portfolio.Which one of the following terms applies to the 28 percent?

Correct Answer
verified

The addition of a risky security to a fully diversified portfolio:

Correct Answer
verified

You own a $58,600 portfolio comprised of four stocks.The values of Stocks A, B, and C are $11,200, $17,400, and $20,400, respectively.What is the portfolio weight of Stock D?

Correct Answer
verified

The beta of a risky portfolio cannot be less than _ nor greater than .

Correct Answer
verified

Stock J has a beta of 1.52 and an expected return of 15.76percent.Stock K has a beta of .98 and an expected return of 11.44 percent.What is the risk-free rate if these securities both plot on the security market line?

Correct Answer
verified

Bass Clef Music Stores' stock has a risk premium of 7 percent while the inflation rate is 1.9 percent and the risk-free rate is 2.2 percent.What is the expected return on this stock?

Correct Answer
verified

Based on the capital asset pricing model, which one of the following must increase the expected return on an individual security, all else held constant?

Correct Answer
verified

The stock of Wiley United has a beta of .98.The market risk premium is 7.6 percent and the risk-free rate is 3.9 percent.What is the expected return on this stock?

Correct Answer
verified

BJB stock has an expected return of 17.82 percent.The risk-free rate is 4.6 percent and the market risk premium is 8.2 percent.What is the stock's beta?

Correct Answer
verified

Unsystematic risk can be defined by all of the following except:

Correct Answer
verified

A stock has a beta of 1.48 and an expected return of 17.3 percent.A risk-free asset currently earns 4.6 percent.If a portfolio of the two assets has a beta of .98, then the weight of the stock must be _ and the risk-free weight must be_.

Correct Answer
verified

A stock has a beta of 1.04, the expected return on the market is 11.75, and the risk-free rate is 3.75.What must the expected return on this stock be?

Correct Answer
verified

Exam 11: Risk and Return

Correct AnswerverifiedShow Answer

Stock J has a beta of 1.06 and an expected return of 12.3 percent, while Stock K has a beta of .74 and an expected return of 6.7 percent.If you create portfolio with the same risk as the market, what rate of return should you expect to earn?

Correct AnswerverifiedShow Answer

Which term best refers to the practice of investing in a variety of diverse assets as a means of reducing risk?

Correct AnswerverifiedShow Answer

Currently, the risk-free rate is 3.2 percent.Stock A has an expected return of 11.4 percent and a beta of 1.11.Stock B has an expected return of 13.7 percent.The stocks have equal reward-to-risk ratios.What is the beta of Stock B?

Correct AnswerverifiedShow Answer

You would like to create a portfolio that is equally invested in a risk-free asset and two stocks.One stock has a beta of 1.39.What does the beta of the second stock have to be if you want the portfolio to be equally as risky as the overall market?

Correct AnswerverifiedShow Answer

You currently own a portfolio valued at $52,000 that has a beta of 1.16.You have another $10,000 to invest and would like to invest it in a manner such that the portfolio beta decreases to 1.15.What does the beta of the new investment have to be?

Correct AnswerverifiedShow Answer

Which one of the following is the minimum required rate of return on a new investment that makes that investment attractive?

Correct AnswerverifiedShow Answer

Sarina Stable Supply stock has a risk premium of 6.2 percent while the inflation rate is 1.7 percent and the risk-free rate is 3.1 percent.What is the expected return on this stock?

Correct AnswerverifiedShow Answer

Stock A comprises 28 percent of Susan's portfolio.Which one of the following terms applies to the 28 percent?

Correct AnswerverifiedShow Answer

The addition of a risky security to a fully diversified portfolio:

Correct AnswerverifiedShow Answer

You own a $58,600 portfolio comprised of four stocks.The values of Stocks A, B, and C are $11,200, $17,400, and $20,400, respectively.What is the portfolio weight of Stock D?

Correct AnswerverifiedShow Answer

The beta of a risky portfolio cannot be less than _____ nor greater than ____.

Correct AnswerverifiedShow Answer

Stock J has a beta of 1.52 and an expected return of 15.76percent.Stock K has a beta of .98 and an expected return of 11.44 percent.What is the risk-free rate if these securities both plot on the security market line?

Correct AnswerverifiedShow Answer

Bass Clef Music Stores' stock has a risk premium of 7 percent while the inflation rate is 1.9 percent and the risk-free rate is 2.2 percent.What is the expected return on this stock?

Correct AnswerverifiedShow Answer

Based on the capital asset pricing model, which one of the following must increase the expected return on an individual security, all else held constant?

Correct AnswerverifiedShow Answer

The stock of Wiley United has a beta of .98.The market risk premium is 7.6 percent and the risk-free rate is 3.9 percent.What is the expected return on this stock?

Correct AnswerverifiedShow Answer

BJB stock has an expected return of 17.82 percent.The risk-free rate is 4.6 percent and the market risk premium is 8.2 percent.What is the stock's beta?

Correct AnswerverifiedShow Answer

Unsystematic risk can be defined by all of the following except:

Correct AnswerverifiedShow Answer

A stock has a beta of 1.48 and an expected return of 17.3 percent.A risk-free asset currently earns 4.6 percent.If a portfolio of the two assets has a beta of .98, then the weight of the stock must be ___ and the risk-free weight must be___.

Correct AnswerverifiedShow Answer

A stock has a beta of 1.04, the expected return on the market is 11.75, and the risk-free rate is 3.75.What must the expected return on this stock be?

Correct AnswerverifiedShow Answer

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The beta of a risky portfolio cannot be less than _ nor greater than .

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A stock has a beta of 1.48 and an expected return of 17.3 percent.A risk-free asset currently earns 4.6 percent.If a portfolio of the two assets has a beta of .98, then the weight of the stock must be _ and the risk-free weight must be_.

Correct Answer
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Correct Answer
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