Question 1

Julie wants to create a $5,000 portfolio.She also wants to invest as much as possible in a high risk stock with the hope of earning a high rate of return.However,she wants her portfolio to have no more risk than the overall market.Which one of the following portfolios is most apt to meet all of her objectives?

Accepted Answer

A)  Invest the entire $5,000 in a stock with a beta of 1.0
B)  Invest $2,500 in a stock with a beta of 1.98 and $2,500 in a stock with a beta of 1.0
C)  Invest $2,500 in a risk-free asset and $2,500 in a stock with a beta of 2.0
D)  Invest $2,500 in a stock with a beta of 1.0, $1,250 in a risk-free asset, and $1,250 in a stock with a beta of 2.0
E)  Invest $2,000 in a stock with a beta of 3, $2,000 in a risk-free asset, and $1,000 in a stock with a beta of 1.0F) A) and C)
G) All of the above

Question 2

You currently own a portfolio valued at $56,000 that has a beta of 1.28.You have another $10,000 to invest and would like to invest it in a manner such that the portfolio beta decreases to 1.20.What does the beta of the new investment have to be?

Accepted Answer

A)  0.75
B)  0.79
C)  0.86
D)  0.92
E)  1.15F) A) and B)
G) A) and C)

Question 3

Ben & Terry's has an expected return of 12.9 percent and a beta of 1.25.The expected return on the market is 11.7 percent.What is the risk-free rate?

Accepted Answer

A)  3.87 percent
B)  4.24 percent
C)  4.61 percent
D)  6.29 percent
E)  6.92 percentF) C) and D)
G) A) and B)

Question 4

Which one of the following best describes a portfolio?

Accepted Answer

A)  Risky security
B)  Security equally as risky as the overall market
C)  New issue of stock
D)  Group of assets held by an investor
E)  Investment in a risk-free securityF) B) and D)
G) A) and C)

Question 5

Which of the following terms can be used to describe unsystematic risk?
I.Asset-specific risk
II.Diversifiable risk
III.Market risk
IV.Unique risk

Accepted Answer

A)  I and IV only
B)  II and III only
C)  I, II, and IV only
D)  II, III, and IV only
E)  I, II, III, and IVF) A) and D)
G) C) and E)

Question 6

A portfolio has an expected return of 12.3 percent.This portfolio contains two stocks and one risk-free security.The expected return on Stock X is 9.7 percent and on Stock Y it is 17.7 percent.The risk-free rate is 3.8 percent.The portfolio value is $78,000 of which $18,000 is the risk-free security.How much is invested in Stock X?

Accepted Answer

A)  $18,600
B)  $19,667
C)  $21,375
D)  $22,204
E)  $24,800F) A) and B)
G) A) and E)

Question 7

Stock J has a beta of 1.17 and an expected return of 14.4 percent,while Stock K has a beta of 0.68 and an expected return of 7.6 percent.You want a portfolio with the same risk as the market.What is the expected return of your portfolio?

Accepted Answer

A)  10.67 percent
B)  11.18 percent
C)  11.62 percent
D)  12.04 percent
E)  13.13 percentF) None of the above
G) B) and E)

Question 8

A stock has a beta of 1.56 and an expected return of 17.3 percent.A risk-free asset currently earns 5.1 percent.If a portfolio of the two assets has a beta of 1.06,what are the portfolio weights?

Accepted Answer

A)  Stock weight = 0.28; risk-free weight = 0.72
B)  Stock weight = 0.032; risk-free weight = 0.68
C)  Stock weight = 0.44; risk-free weight = 0.56
D)  Stock weight = 0.68; risk-free weight = 0.32
E)  Stock weight = 0.72; risk-free weight = 0.28F) A) and C)
G) B) and D)

Question 9

You have compiled the following information on your investments.What rate of return should you expect to earn on this portfolio?

Accepted Answer

A)  9.54 percent
B)  9.83 percent
C)  10.01 percent
D)  10.27 percent
E)  10.58 percentF) A) and E)
G) D) and E)

Question 10

Global Importers predicted that its earnings per share for the year would be $1.86.Today,the firm released its earnings report and the earnings per share turned out to be $1.99 per share.In response to the earnings report,the price per share of Global Importers stock declined by 3.4 percent.Explain how the market price can decrease when the announced earnings were higher than the firm predicted.

Accepted Answer

The stock market must have anticipated e...

Question 11

A stock has an expected return of 15.0 percent,the risk-free rate is 3.2 percent,and the market risk premium is 8.1 percent.What must the beta of this stock be?

Accepted Answer

A)  0.88
B)  0.94
C)  1.08
D)  1.31
E)  1.46F) B) and C)
G) A) and B)

Question 12

Explain the relationships among the reward-to-risk ratio,risk-free rate of return,market rate of return,market risk premium,beta,and the security market line.

Accepted Answer

The reward-to-risk ratio is the market r...

Question 13

You own a portfolio equally invested in a risk-free asset and two stocks.If one of the stocks has a beta of 1.12 and the total portfolio is equally as risky as the market,what must the beta be for the other stock in your portfolio?

Accepted Answer

A)  1.37
B)  1.54
C)  1.88
D)  1.98
E)  2.97F) B) and D)
G) A) and B)

Question 14

The expected return on a security depends on which of the following?
I.Risk-free rate of return
II.Amount of the security's unique risk
III Market rate of return
IV.Standard deviation of returns

Accepted Answer

A)  I and III only
B)  II and IV only
C)  II, III, and IV only
D)  I, III, and IV only
E)  I, II, III, and IVF) D) and E)
G) B) and E)

Question 15

You own a $46,000 portfolio comprised of four stocks.The values of Stocks A,B,and C are $5,600,$16,700,and $11,400,respectively.What is the portfolio weight of Stock D?

Accepted Answer

A)  24.57 percent
B)  25.39 percent
C)  30.33 percent
D)  32.10 percent
E)  32.58 percentF) C) and D)
G) D) and E)

Question 16

The risk-free rate is 4.2 percent and the expected return on the market is 12.3 percent.Stock A has a beta of 1.2 and an expected return of 13.1 percent.Stock B has a beta of 0.75 and an expected return of 11.4 percent.Are these stocks correctly priced? Why or why not?

Accepted Answer

A)  No, Stock A is underpriced and Stock B is overpriced.
B)  No, Stock A is overpriced and Stock B is underpriced.
C)  No, Stock A is overpriced but Stock B is correctly priced.
D)  No, Stock A is underpriced but Stock B is correctly priced.
E)  Yes, both stocks are correctly priced.F) B) and C)
G) A) and B)

Question 17

Portfolio diversification eliminates which one of the following?

Accepted Answer

A)  Total investment risk
B)  Portfolio risk premium
C)  Market risk
D)  Unsystematic risk
E)  Reward for bearing riskF) D) and E)
G) A) and C)

Question 18

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) B) and C)
G) A) and D)

Question 19

A stock has a beta of 1.24,an expected return of 13.68 percent,and lies on the security market line.A risk-free asset is yielding 2.8 percent.You want to create a $6,000 portfolio consisting of Stock A and the risk-free security such that the portfolio beta is 0.65.What rate of return should you expect to earn on your portfolio?

Accepted Answer

A)  8.50 percent
B)  9.16 percent
C)  9.33 percent
D)  9.41 percent
E)  9.56 percentF) C) and E)
G) D) and E)

Question 20

Consider the following information:  What is the variance of a portfolio invested 30 percent each in Stocks A and B and 40 percent in Stock C?

Accepted Answer

A)  0.000065
B)  0.000163
C)  0.000289
D)  0.000528
E)  0.001740F) A) and B)
G) C) and D)

Exam 11: Risk and Return

Portfolio diversification eliminates which one of the following?

Correct Answer
verified

You own a portfolio equally invested in a risk-free asset and two stocks.If one of the stocks has a beta of 1.12 and the total portfolio is equally as risky as the market,what must the beta be for the other stock in your portfolio?

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

Correct Answer
verified

Which one of the following best describes a portfolio?

Correct Answer
verified

Correct Answer
verified

Explain the relationships among the reward-to-risk ratio,risk-free rate of return,market rate of return,market risk premium,beta,and the security market line.

Correct Answer
verified
The reward-to-risk ratio is the market r...
View Answer

Consider the following information: What is the variance of a portfolio invested 30 percent each in Stocks A and B and 40 percent in Stock C?

Correct Answer
verified

You currently own a portfolio valued at $56,000 that has a beta of 1.28.You have another $10,000 to invest and would like to invest it in a manner such that the portfolio beta decreases to 1.20.What does the beta of the new investment have to be?

Correct Answer
verified

The risk-free rate is 4.2 percent and the expected return on the market is 12.3 percent.Stock A has a beta of 1.2 and an expected return of 13.1 percent.Stock B has a beta of 0.75 and an expected return of 11.4 percent.Are these stocks correctly priced? Why or why not?

Correct Answer
verified

Stock J has a beta of 1.17 and an expected return of 14.4 percent,while Stock K has a beta of 0.68 and an expected return of 7.6 percent.You want a portfolio with the same risk as the market.What is the expected return of your portfolio?

Correct Answer
verified

A stock has an expected return of 15.0 percent,the risk-free rate is 3.2 percent,and the market risk premium is 8.1 percent.What must the beta of this stock be?

Correct Answer
verified

Which of the following terms can be used to describe unsystematic risk? I.Asset-specific risk II.Diversifiable risk III.Market risk IV.Unique risk

Correct Answer
verified

Correct Answer
verified
The stock market must have anticipated e...
View Answer

You have compiled the following information on your investments.What rate of return should you expect to earn on this portfolio?

Correct Answer
verified

Correct Answer
verified

A stock has a beta of 1.56 and an expected return of 17.3 percent.A risk-free asset currently earns 5.1 percent.If a portfolio of the two assets has a beta of 1.06,what are the portfolio weights?

Correct Answer
verified

You own a $46,000 portfolio comprised of four stocks.The values of Stocks A,B,and C are $5,600,$16,700,and $11,400,respectively.What is the portfolio weight of Stock D?

Correct Answer
verified

Ben & Terry's has an expected return of 12.9 percent and a beta of 1.25.The expected return on the market is 11.7 percent.What is the risk-free rate?

Correct Answer
verified

The expected return on a security depends on which of the following? I.Risk-free rate of return II.Amount of the security's unique risk III Market rate of return IV.Standard deviation of returns

Correct Answer
verified

Exam 11: Risk and Return

Portfolio diversification eliminates which one of the following?

Correct AnswerverifiedShow Answer

You own a portfolio equally invested in a risk-free asset and two stocks.If one of the stocks has a beta of 1.12 and the total portfolio is equally as risky as the market,what must the beta be for the other stock in your portfolio?

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

Correct AnswerverifiedShow Answer

Which one of the following best describes a portfolio?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Explain the relationships among the reward-to-risk ratio,risk-free rate of return,market rate of return,market risk premium,beta,and the security market line.

Correct AnswerverifiedThe reward-to-risk ratio is the market r...View AnswerShow Answer

Consider the following information: What is the variance of a portfolio invested 30 percent each in Stocks A and B and 40 percent in Stock C?

Correct AnswerverifiedShow Answer

You currently own a portfolio valued at $56,000 that has a beta of 1.28.You have another $10,000 to invest and would like to invest it in a manner such that the portfolio beta decreases to 1.20.What does the beta of the new investment have to be?

Correct AnswerverifiedShow Answer

The risk-free rate is 4.2 percent and the expected return on the market is 12.3 percent.Stock A has a beta of 1.2 and an expected return of 13.1 percent.Stock B has a beta of 0.75 and an expected return of 11.4 percent.Are these stocks correctly priced? Why or why not?

Correct AnswerverifiedShow Answer

Stock J has a beta of 1.17 and an expected return of 14.4 percent,while Stock K has a beta of 0.68 and an expected return of 7.6 percent.You want a portfolio with the same risk as the market.What is the expected return of your portfolio?

Correct AnswerverifiedShow Answer

A stock has an expected return of 15.0 percent,the risk-free rate is 3.2 percent,and the market risk premium is 8.1 percent.What must the beta of this stock be?

Correct AnswerverifiedShow Answer

Which of the following terms can be used to describe unsystematic risk? I.Asset-specific risk II.Diversifiable risk III.Market risk IV.Unique risk

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe stock market must have anticipated e...View AnswerShow Answer

You have compiled the following information on your investments.What rate of return should you expect to earn on this portfolio?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A stock has a beta of 1.56 and an expected return of 17.3 percent.A risk-free asset currently earns 5.1 percent.If a portfolio of the two assets has a beta of 1.06,what are the portfolio weights?

Correct AnswerverifiedShow Answer

You own a $46,000 portfolio comprised of four stocks.The values of Stocks A,B,and C are $5,600,$16,700,and $11,400,respectively.What is the portfolio weight of Stock D?

Correct AnswerverifiedShow Answer

Ben & Terry's has an expected return of 12.9 percent and a beta of 1.25.The expected return on the market is 11.7 percent.What is the risk-free rate?

Correct AnswerverifiedShow Answer

The expected return on a security depends on which of the following? I.Risk-free rate of return II.Amount of the security's unique risk III Market rate of return IV.Standard deviation of returns

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
The reward-to-risk ratio is the market r...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The stock market must have anticipated e...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified