FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 8: Risk and Rates of Return

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 81

True/False

Review LaterAdd Note

Review Later

The CAPM is a multi-period model that takes account of differences in securities' maturities,and it can be used to determine the required rate of return for any given level of systematic risk.

A) True
B) False

Correct Answer

verified

Show Answer

Question 82

True/False

Review LaterAdd Note

Review Later

If investors are risk averse and hold only one stock,we can conclude that the required rate of return on a stock whose standard deviation is 0.21 will be greater than the required return on a stock whose standard deviation is 0.10.However,if stocks are held in portfolios,it is possible that the required return could be higher on the stock with the lower standard deviation.

A) True
B) False

Correct Answer

verified

Show Answer

Question 83

Multiple Choice

Review LaterAdd Note

For markets to be in equilibrium,that is,for there to be no strong pressure for prices to depart from their current levels,

Stocks A and B each have an expected return of 12%,a beta of 1.2,and a standard deviation of 25%.The returns on the two stocks have a correlation of +0.6.Portfolio P has 50% in Stock A and 50% in Stock B.Which of the following statements is CORRECT?

The distributions of rates of return for Companies AA and BB are given below: ? $\begin{array} { l l r r } \text { State of the } & \text { Probability of } & & \\\text { Economy } & \text { This State Occurring } & \underline { \text { AA } } & \underline { \text { B B } } \\\text { Boom } & 0.2 & 30 \% & - 10 \% \\\text { Normal } & 0.6 & 10 \% & 5 \% \\\text { Recession } & 0.2 & - 5 \% & 50 \%\end{array}$ ? We can conclude from the above information that any rational,risk-averse investor would be better off adding Security AA to a well-diversified portfolio over Security BB.

If the returns of two firms are negatively correlated,then one of them must have a negative beta.

Assume that you are the portfolio manager of the SF Fund,a $3 million hedge fund that contains the following stocks.The required rate of return on the market is 11.00% and the risk-free rate is 2.00%.What rate of return should investors expect (and require) on this fund? Do not round your intermediate calculations. $\begin{array}{lrl}\text { Stock }&\text { amount }&\text { Beta }\\\text { A } & \$ 1,075,000 & 1.20 \\B & \$ 675,000 & 0.50 \\\mathrm{C} & \$ 750,000 & 1.40 \\\mathrm{D} & \$ 500,000 & 0.75\\&\$3,000,000\end{array}$ ?