Question 1

Explain the difference between systematic and unsystematic risk.Also explain why one of these types of risks is rewarded with a risk premium while the other type is not.

Accepted Answer

Unsystematic,or diversifiable,risk affec...

Question 2

The expected return on a stock computed using economic probabilities is:

Accepted Answer

A)   guaranteed to equal the actual average return on the stock for the next five years.
B)   guaranteed to be the minimal rate of return on the stock over the next two years.
C)   guaranteed to equal the actual return for the immediate twelve month period.
D)   a mathematical expectation based on a weighted average and not an actual anticipated outcome.
E)   the actual return you should anticipate as long as the economic forecast remains constant.F) A) and E)
G) None of the above

Question 3

The primary purpose of portfolio diversification is to:

Accepted Answer

A)   increase returns and risks.
B)   eliminate all risks.
C)   eliminate asset-specific risk.
D)   eliminate systematic risk.
E)   lower both returns and risks.F) A) and C)
G) A) and D)

Question 4

Systematic risk is measured by:

Accepted Answer

A)   the mean.
B)   beta.
C)   the geometric average.
D)   the standard deviation.
E)   the arithmetic average.F) All of the above
G) C) and E)

Question 5

What is the expected return on this portfolio?

Accepted Answer

A)   11.48 percent
B)   12.37 percent
C)   13.03 percent
D)   13.42 percent
E)   13.97 percentF) A) and B)
G) A) and D)

Question 6

Which one of the following stocks is correctly priced if the risk-free rate of return is 3.2 percent and the market rate of return is 11.76 percent?

Accepted Answer

A)   A
B)   B
C)   C
D)   D
E)   EF) A) and D)
G) C) and D)

Question 7

Which of the following statements are correct concerning diversifiable risks?
I.Diversifiable risks can be essentially eliminated by investing in thirty unrelated securities.
II.There is no reward for accepting diversifiable risks.
III.Diversifiable risks are generally associated with an individual firm or industry.
IV.Beta measures diversifiable risk.

Accepted Answer

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

Question 8

The _____ of a security divided by the beta of that security is equal to the slope of the security market line if the security is priced fairly.

Accepted Answer

A)   real return
B)   actual return
C)   nominal return
D)   risk premium
E)   expected returnF) All of the above
G) None of the above

Question 9

What is the standard deviation of the returns on a $30,000 portfolio which consists of stocks S and T? Stock S is valued at $21,000.

Accepted Answer

A)   2.07 percent
B)   2.61 percent
C)   3.36 percent
D)   3.49 percent
E)   3.63 percentF) None of the above
G) A) and E)

Question 10

Your portfolio is comprised of 40 percent of stock X,15 percent of stock Y,and 45 percent of stock Z.Stock X has a beta of 1.16,stock Y has a beta of 1.47,and stock Z has a beta of 0.42.What is the beta of your portfolio?

Accepted Answer

A)   0.87
B)   1.09
C)   1.13
D)   1.18
E)   1.21F) A) and D)
G) A) and C)

Question 11

Which one of the following is a positively sloped linear function that is created when expected returns are graphed against security betas?

Accepted Answer

A)   reward-to-risk matrix
B)   portfolio weight graph
C)   normal distribution
D)   security market line
E)   market real returnsF) C) and D)
G) B) and D)

Question 12

Which one of the following is represented by the slope of the security market line?

Accepted Answer

A)   reward-to-risk ratio
B)   market standard deviation
C)   beta coefficient
D)   risk-free interest rate
E)   market risk premiumF) D) and E)
G) A) and B)

Question 13

You have $10,000 to invest in a stock portfolio.Your choices are Stock X with an expected return of 13 percent and Stock Y with an expected return of 8 percent.Your goal is to create a portfolio with an expected return of 12.4 percent.All money must be invested.How much will you invest in stock X?

Accepted Answer

A)   $800
B)   $1,200
C)   $4,600
D)   $8,800
E)   $9,200F) D) and E)
G) A) and E)

Question 14

You own the following portfolio of stocks.What is the portfolio weight of stock C?

Accepted Answer

A)   39.85 percent
B)   42.86 percent
C)   44.41 percent
D)   48.09 percent
E)   52.65 percentF) None of the above
G) A) and E)

Question 15

The expected return on a portfolio considers which of the following factors?
I.percentage of the portfolio invested in each individual security
II.projected states of the economy
III.the performance of each security given various economic states
IV.probability of occurrence for each state of the economy

Accepted Answer

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

Question 16

Thayer Farms stock has a beta of 1.12.The risk-free rate of return is 4.34 percent and the market risk premium is 7.92 percent.What is the expected rate of return on this stock?

Accepted Answer

A)   8.35 percent
B)   9.01 percent
C)   10.23 percent
D)   13.21 percent
E)   13.73 percentF) A) and E)
G) C) and E)

Question 17

The expected return on a portfolio:
I.can never exceed the expected return of the best performing security in the portfolio.
II.must be equal to or greater than the expected return of the worst performing security in the portfolio.
III.is independent of the unsystematic risks of the individual securities held in the portfolio.
IV.is independent of the allocation of the portfolio amongst individual securities.

Accepted Answer

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

Question 18

The market rate of return is 11 percent and the risk-free rate of return is 3 percent.Lexant stock has 3 percent less systematic risk than the market and has an actual return of 12 percent.This stock:

Accepted Answer

A)   is underpriced.
B)   is correctly priced.
C)   will plot below the security market line.
D)   will plot on the security market line.
E)   will plot to the right of the overall market on a security market line graph.F) A) and D)
G) C) and D)

Question 19

The expected return on a stock given various states of the economy is equal to the:

Accepted Answer

A)   highest expected return given any economic state.
B)   arithmetic average of the returns for each economic state.
C)   summation of the individual expected rates of return.
D)   weighted average of the returns for each economic state.
E)   return for the economic state with the highest probability of occurrence.F) B) and C)
G) C) and E)

Question 20

The expected rate of return on a stock portfolio is a weighted average where the weights are based on the:

Accepted Answer

A)   number of shares owned of each stock.
B)   market price per share of each stock.
C)   market value of the investment in each stock.
D)   original amount invested in each stock.
E)   cost per share of each stock held.F) A) and B)
G) A) and C)

Exam 13: Return, Risk, and the Security Market Linepart Six: Cost of Capital and Long-Term Financial Policy

The expected rate of return on a stock portfolio is a weighted average where the weights are based on the:

Correct Answer
verified

Thayer Farms stock has a beta of 1.12.The risk-free rate of return is 4.34 percent and the market risk premium is 7.92 percent.What is the expected rate of return on this stock?

Correct Answer
verified

What is the expected return on this portfolio?

Correct Answer
verified

Which one of the following is represented by the slope of the security market line?

Correct Answer
verified

Systematic risk is measured by:

Correct Answer
verified

The expected return on a stock computed using economic probabilities is:

Correct Answer
verified

Correct Answer
verified

The market rate of return is 11 percent and the risk-free rate of return is 3 percent.Lexant stock has 3 percent less systematic risk than the market and has an actual return of 12 percent.This stock:

Correct Answer
verified

The _____ of a security divided by the beta of that security is equal to the slope of the security market line if the security is priced fairly.

Correct Answer
verified

You own the following portfolio of stocks.What is the portfolio weight of stock C?

Correct Answer
verified

You have $10,000 to invest in a stock portfolio.Your choices are Stock X with an expected return of 13 percent and Stock Y with an expected return of 8 percent.Your goal is to create a portfolio with an expected return of 12.4 percent.All money must be invested.How much will you invest in stock X?

Correct Answer
verified

The expected return on a stock given various states of the economy is equal to the:

Correct Answer
verified

Which one of the following stocks is correctly priced if the risk-free rate of return is 3.2 percent and the market rate of return is 11.76 percent?

Correct Answer
verified

What is the standard deviation of the returns on a $30,000 portfolio which consists of stocks S and T? Stock S is valued at $21,000.

Correct Answer
verified

Which one of the following is a positively sloped linear function that is created when expected returns are graphed against security betas?

Correct Answer
verified

Explain the difference between systematic and unsystematic risk.Also explain why one of these types of risks is rewarded with a risk premium while the other type is not.

Correct Answer
verified
Unsystematic,or diversifiable,risk affec...
View Answer

The primary purpose of portfolio diversification is to:

Correct Answer
verified

Correct Answer
verified

Your portfolio is comprised of 40 percent of stock X,15 percent of stock Y,and 45 percent of stock Z.Stock X has a beta of 1.16,stock Y has a beta of 1.47,and stock Z has a beta of 0.42.What is the beta of your portfolio?

Correct Answer
verified

Correct Answer
verified

Exam 13: Return, Risk, and the Security Market Linepart Six: Cost of Capital and Long-Term Financial Policy

The expected rate of return on a stock portfolio is a weighted average where the weights are based on the:

Correct AnswerverifiedShow Answer

Thayer Farms stock has a beta of 1.12.The risk-free rate of return is 4.34 percent and the market risk premium is 7.92 percent.What is the expected rate of return on this stock?

Correct AnswerverifiedShow Answer

What is the expected return on this portfolio?

Correct AnswerverifiedShow Answer

Which one of the following is represented by the slope of the security market line?

Correct AnswerverifiedShow Answer

Systematic risk is measured by:

Correct AnswerverifiedShow Answer

The expected return on a stock computed using economic probabilities is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The market rate of return is 11 percent and the risk-free rate of return is 3 percent.Lexant stock has 3 percent less systematic risk than the market and has an actual return of 12 percent.This stock:

Correct AnswerverifiedShow Answer

The _____ of a security divided by the beta of that security is equal to the slope of the security market line if the security is priced fairly.

Correct AnswerverifiedShow Answer

You own the following portfolio of stocks.What is the portfolio weight of stock C?

Correct AnswerverifiedShow Answer

You have $10,000 to invest in a stock portfolio.Your choices are Stock X with an expected return of 13 percent and Stock Y with an expected return of 8 percent.Your goal is to create a portfolio with an expected return of 12.4 percent.All money must be invested.How much will you invest in stock X?

Correct AnswerverifiedShow Answer

The expected return on a stock given various states of the economy is equal to the:

Correct AnswerverifiedShow Answer

Which one of the following stocks is correctly priced if the risk-free rate of return is 3.2 percent and the market rate of return is 11.76 percent?

Correct AnswerverifiedShow Answer

What is the standard deviation of the returns on a $30,000 portfolio which consists of stocks S and T? Stock S is valued at $21,000.

Correct AnswerverifiedShow Answer

Which one of the following is a positively sloped linear function that is created when expected returns are graphed against security betas?

Correct AnswerverifiedShow Answer

Explain the difference between systematic and unsystematic risk.Also explain why one of these types of risks is rewarded with a risk premium while the other type is not.

Correct AnswerverifiedUnsystematic,or diversifiable,risk affec...View AnswerShow Answer

The primary purpose of portfolio diversification is to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Your portfolio is comprised of 40 percent of stock X,15 percent of stock Y,and 45 percent of stock Z.Stock X has a beta of 1.16,stock Y has a beta of 1.47,and stock Z has a beta of 0.42.What is the beta of your portfolio?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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Unsystematic,or diversifiable,risk affec...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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