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Your portfolio is invested 30 percent each in Stocks A and C,and 40 percent in Stock B.What is the standard deviation of your portfolio given the following information? Your portfolio is invested 30 percent each in Stocks A and C,and 40 percent in Stock B.What is the standard deviation of your portfolio given the following information? A) 12.38 percent B) 12.64 percent C) 12.72 percent D) 12.89 percent E) 13.97 percent


A) 12.38 percent
B) 12.64 percent
C) 12.72 percent
D) 12.89 percent
E) 13.97 percent

Correct Answer

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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:


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.

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A portfolio beta is a weighted average of the betas of the individual securities which comprise the portfolio.However,the standard deviation is not a weighted average of the standard deviations of the individual securities which comprise the portfolio.Explain why this difference exists.

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Standard deviation measures total risk.T...

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A stock has a beta of 1.2 and an expected return of 17 percent.A risk-free asset currently earns 5.1 percent.The beta of a portfolio comprised of these two assets is 0.85.What percentage of the portfolio is invested in the stock?


A) 71 percent
B) 77 percent
C) 84 percent
D) 89 percent
E) 92 percent

Correct Answer

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Explain how the slope of the security market line is determined and why every stock that is correctly priced,according to CAPM,will lie on this line.

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The market risk premium is the slope of ...

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If the economy is normal,Charleston Freight stock is expected to return 16.5 percent.If the economy falls into a recession,the stock's return is projected at a negative 11.6 percent.The probability of a normal economy is 80 percent while the probability of a recession is 20 percent.What is the variance of the returns on this stock?


A) 0.010346
B) 0.012634
C) 0.013420
D) 0.013927
E) 0.014315

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A stock has an expected return of 11 percent,the risk-free rate is 5.2 percent,and the market risk premium is 5 percent.What is the stock's beta?


A) 1.08
B) 1.16
C) 1.29
D) 1.32
E) 1.35

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What is the expected return of an equally weighted portfolio comprised of the following three stocks? What is the expected return of an equally weighted portfolio comprised of the following three stocks? A) 16.33 percent B) 18.60 percent C) 19.67 percent D) 20.48 percent E) 21.33 percent


A) 16.33 percent
B) 18.60 percent
C) 19.67 percent
D) 20.48 percent
E) 21.33 percent

Correct Answer

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What is the expected return on this portfolio? What is the expected return on this portfolio? A) 11.48 percent B) 12.37 percent C) 13.03 percent D) 13.42 percent E) 13.97 percent


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

Correct Answer

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Which one of the following statements is correct concerning a portfolio beta?


A) Portfolio betas range between -1.0 and +1.0.
B) A portfolio beta is a weighted average of the betas of the individual securities contained in the portfolio.
C) A portfolio beta cannot be computed from the betas of the individual securities comprising the portfolio because some risk is eliminated via diversification.
D) A portfolio of U.S. Treasury bills will have a beta of +1.0.
E) The beta of a market portfolio is equal to zero.

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Suppose you observe the following situation: Suppose you observe the following situation: Assume these securities are correctly priced.Based on the CAPM,what is the return on the market? A) 13.99 percent B) 14.42 percent C) 14.67 percent D) 14.78 percent E) 15.01 percent Assume these securities are correctly priced.Based on the CAPM,what is the return on the market?


A) 13.99 percent
B) 14.42 percent
C) 14.67 percent
D) 14.78 percent
E) 15.01 percent

Correct Answer

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You own a portfolio with the following expected returns given the various states of the economy.What is the overall portfolio expected return? You own a portfolio with the following expected returns given the various states of the economy.What is the overall portfolio expected return? A) 6.49 percent B) 8.64 percent C) 8.87 percent D) 9.86 percent E) 10.23 percent


A) 6.49 percent
B) 8.64 percent
C) 8.87 percent
D) 9.86 percent
E) 10.23 percent

Correct Answer

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The primary purpose of portfolio diversification is to:


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

Correct Answer

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Which one of the following events would be included in the expected return on Sussex stock?


A) The chief financial officer of Sussex unexpectedly resigned.
B) The labor union representing Sussex' employees unexpectedly called a strike.
C) This morning, Sussex confirmed that its CEO is retiring at the end of the year as was anticipated.
D) The price of Sussex stock suddenly declined in value because researchers accidentally discovered that one of the firm's products can be toxic to household pets.
E) The board of directors made an unprecedented decision to give sizeable bonuses to the firm's internal auditors for their efforts in uncovering wasteful spending.

Correct Answer

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What is the standard deviation of the returns on a portfolio that is invested in stocks A,B,and C? Twenty five percent of the portfolio is invested in stock A and 40 percent is invested in stock C. What is the standard deviation of the returns on a portfolio that is invested in stocks A,B,and C? Twenty five percent of the portfolio is invested in stock A and 40 percent is invested in stock C. A) 6.31 percent B) 6.49 percent C) 7.40 percent D) 7.83 percent E) 8.72 percent


A) 6.31 percent
B) 6.49 percent
C) 7.40 percent
D) 7.83 percent
E) 8.72 percent

Correct Answer

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You have a $12,000 portfolio which is invested in stocks A and B,and a risk-free asset.$5,000 is invested in stock A.Stock A has a beta of 1.76 and stock B has a beta of 0.89.How much needs to be invested in stock B if you want a portfolio beta of 1.10?


A) $3,750.00
B) $4,333.33
C) $4,706.20
D) $4,943.82
E) $5,419.27

Correct Answer

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The reward-to-risk ratio for stock A is less than the reward-to-risk ratio of stock B.Stock A has a beta of 0.82 and stock B has a beta of 1.29.This information implies that:


A) stock A is riskier than stock B and both stocks are fairly priced.
B) stock A is less risky than stock B and both stocks are fairly priced.
C) either stock A is underpriced or stock B is overpriced or both.
D) either stock A is overpriced or stock B is underpriced or both.
E) both stock A and stock B are correctly priced since stock A is riskier than stock B.

Correct Answer

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Which one of the following statements is correct concerning a portfolio of 20 securities with multiple states of the economy when both the securities and the economic states have unequal weights?


A) Given the unequal weights of both the securities and the economic states, the standard deviation of the portfolio must equal that of the overall market.
B) The weights of the individual securities have no effect on the expected return of a portfolio when multiple states of the economy are involved.
C) Changing the probabilities of occurrence for the various economic states will not affect the expected standard deviation of the portfolio.
D) The standard deviation of the portfolio will be greater than the highest standard deviation of any single security in the portfolio given that the individual securities are well diversified.
E) Given both the unequal weights of the securities and the economic states, an investor might be able to create a portfolio that has an expected standard deviation of zero.

Correct Answer

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What is the beta of the following portfolio? What is the beta of the following portfolio? A) .95 B) 1.01 C) 1.05 D) 1.09 E) 1.23


A) .95
B) 1.01
C) 1.05
D) 1.09
E) 1.23

Correct Answer

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Systematic risk is measured by:


A) the mean.
B) beta.
C) the geometric average.
D) the standard deviation.
E) the arithmetic average.

Correct Answer

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