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What is the beta of a portfolio which consists of the following? What is the beta of a portfolio which consists of the following? A) 1.01 B) 1.24 C) 1.26 D) 1.29 E) 1.31


A) 1.01
B) 1.24
C) 1.26
D) 1.29
E) 1.31

Correct Answer

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Which one of the following is the type of risk that only affects either a single firm or just a small number of firms?


A) unexpected
B) market
C) systematic
D) unsystematic
E) expected

Correct Answer

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Alfonso Rodriquez has served as the president of Imports United for the past six years. During his tenure, the company has grown significantly and provided above-average returns to its shareholders. Thus, Mr. Rodriquez is highly admired. Yesterday, he announced that he will be retiring at the end of this quarter. You expected the stock price of Imports United to decline on this news because of the admiration investors have for this gentleman. Contrary to your expectations, the price of the stock remained unchanged. There was no other relevant market news related to this firm and the overall market also remained relatively unchanged for the day. What explanation can be given for the market not reacting as you expected to Mr. Rodriquez's announcement?

Correct Answer

Answered by ExamLex AI

Answered by ExamLex AI

There are several potential explanations...

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Which one of the following is the theory which states that the value of a security is dependent upon the pure time value of money, the reward for bearing systematic risk, and the amount of systematic risk?


A) reward-to-risk theory
B) capital asset pricing model
C) risk premium proposal
D) market slope hypothesis
E) security market line proposition

Correct Answer

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Which one of the following will increase the slope of the security market line? Assume all else constant.


A) increasing the beta of an efficiently-priced portfolio
B) increasing the risk-free rate
C) increasing the market risk premium
D) decreasing the market rate of return
E) replacing a low-beta stock with a high-beta stock within a portfolio

Correct Answer

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Which one of the following must be equal for two individual securities with differing betas if those securities are correctly priced according to the capital asset pricing model?


A) standard deviation
B) rate of return
C) beta
D) risk premium
E) reward-to-risk ratio

Correct Answer

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A portfolio beta is computed as which one of the following?


A) weighted average
B) arithmetic average
C) geometric average
D) correlated value
E) covariance value

Correct Answer

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Which one of the following is the best example of a risk associated with stock ownership?


A) The stock paid a regular quarterly dividend.
B) The firm's net income decreased by 4 percent for the quarter, as had been expected.
C) One of the firm's patent applications was unexpectedly rejected.
D) The firm's cost of debt increased as the result of an expected tax cut.
E) The firm's production costs increased in line with previous years.

Correct Answer

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Which one of the following is expressed as "E(RM) - Rf"?


A) market risk premium
B) individual security risk premium
C) real rate of return
D) total expected rate of return
E) market rate of return

Correct Answer

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A portfolio is comprised of two stocks. Stock A comprises 55 percent of the portfolio and has a beta of 1.31. Stock B has a beta of .98. What is the portfolio beta?


A) .98
B) 1.03
C) 1.08
D) 1.16
E) 1.22

Correct Answer

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What is the covariance of security A to the market given the following information? What is the covariance of security A to the market given the following information? A) 23.14 B) 29.88 C) 48.83 D) 99.18 E) 114.01


A) 23.14
B) 29.88
C) 48.83
D) 99.18
E) 114.01

Correct Answer

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What is the covariance of security A to the market given the following information? What is the covariance of security A to the market given the following information? A) 75.0 B) 80.1 C) 83.8 D) 87.0 E) 91.1


A) 75.0
B) 80.1
C) 83.8
D) 87.0
E) 91.1

Correct Answer

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A stock has an expected return of 14.59 percent and a beta of 1.35. What is the risk-free rate if the market rate is 12.7 percent?


A) 6.48 percent
B) 6.92 percent
C) 7.01 percent
D) 7.30 percent
E) 7.90 percent

Correct Answer

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Which one of the following statements is true?


A) Risk and return are inversely related.
B) Investors are compensated only for diversifiable risk.
C) The beta of a portfolio may be lower than the lowest beta of any individual security held within the portfolio.
D) How a security affects the risk of a portfolio is less important than the actual risk of the security itself.
E) Investing has two dimensions: risk and return.

Correct Answer

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Which one of the following measures systematic risk?


A) beta
B) alpha
C) variance
D) standard deviation
E) correlation coefficient

Correct Answer

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Home Interior's stock has an expected return of 12.89 percent and a beta of 1.28. The market return is 10.7 percent and the risk-free rate is 2.8 percent. This stock is _____ because the CAPM return for the stock is _____ percent.


A) greatly overvalued; 16.50
B) slightly overvalued; 12.91
C) priced correctly; 12.89
D) slightly undervalued; 12.91
E) greatly undervalued; 16.50

Correct Answer

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Which of the following are needed to compute the beta of an individual security? I. average return on the market for the period II. standard deviation of the security and the market III. returns on the security and the market for multiple time periods IV. correlation of the security to the market


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

Correct Answer

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Wilson Farms' stock has a beta of .84 and an expected return of 7.8 percent. The risk-free rate is 2.6 percent and the market risk premium is 6 percent. This stock is _____ because the CAPM return for the stock is _____ percent.


A) undervalued; 7.34
B) undervalued; 7.49
C) undervalued; 7.64
D) overvalued; 7.34
E) overvalued; 7.49

Correct Answer

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Which one of the following betas represents the greatest level of systematic risk?


A) .05
B) .68
C) 1.00
D) 1.19
E) 1.27

Correct Answer

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The slope of the security market line is equal to the:


A) market risk premium.
B) risk-free rate of return.
C) market rate of return.
D) market rate of return multiplied by any security's beta, given an inefficient market.
E) market rate of return multiplied by the risk-free rate.

Correct Answer

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