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Exam 7: Risk and Return

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Question 41

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The standard deviation of a distribution can be a negative value.

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Question 42

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Sayers purchased a stock with a coefficient of variation equal to 0.125. The expected return on the stock is 20 percent. What is the variance of the stock?

A) 0.000625
B) 0.025000
C) 0.625000
D) 0.790500

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Question 43

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Company A has a beta of 0.70, while Company B's beta is 1.20. The required return on the stock market is 11.00%, and the risk-free rate is 4.25%. What is the difference between A's and B's required rates of return?

The beta of Ricci Co.'s stock is 3.2, whereas the risk-free rate of return is 9 percent. If the expected return on the market is 18 percent, then what should investors expect as a return on on Ricci Co.?

Which of the following is the best measure of the systematic risk in a portfolio?

Moshe purchased a stock for $30 last year. He found out today that he had a -100 percent return on his investment. Which of the following must be true?

If the capital appreciation return from owning a stock is positive, then the total return from owning the same stock can be negative.

The expected return on Karol Co. stock is 16.5 percent. If the risk-free rate is 5 percent and the beta of Karol Co is 2.3, then what is the risk premium on the market portfolio?

George Wilson purchased Bright Light Industries common stock for $47.50 on January 31, 2016. The firm paid dividends of $1.10 during the last 12 months. George sold the stock today (January 30, 2017) for $54.00. What is George's holding period return?

Given the historical information in the chapter, the beta of a small stock should be greater than the beta of a corporate bond.

Robert paid $100 for a stock one year ago. The total return on the stock was 10 percent. This means that the stock must be selling for $110 today.

You have placed a wager such that you will either receive nothing if you lose the bet or you will receive $10 if you win the bet. If your expected cash receipt is $9, then there is a 100 percent probability that you will win the wager.

Serox stock was selling for $20 two years ago. The stock sold for $25 one year ago, and it is currently selling for $28. Serox pays a $1.10 dividend per year. What was the rate of return for owning Serox in the most recent year? (Round to the nearest percent.)

View Point Industries has forecasted a rate of return of 20.00% if the economy booms (25.00% probability) ; a rate of return of 15.00% if the economy is in a growth phase (45.00% probability) ; a rate of return of 2.50% if the economy is in decline (20.00% probability) ; and a rate of return of -15.00% if the economy is in a depression (10.00% probability) . What is View Point's standard deviation of returns? Do not round intermediate computations. Round your final answer to two decimal points.

The variance is denominated in squared units, whereas the standard deviation is denominated in the same units as the expected value.

If you were to completely diversify your portfolio by purchasing a portion of every asset in the investment universe, then the expected return of your portfolio is equal to the risk-free rate.

The smaller the range of expected future returns, the greater the risk of a given investment as measured by its mean.

If the price of an asset has increased since the original purchase of the asset, then the total return of the asset (if no dividends were paid during the period) is equal to the capital appreciation component return.

Genaro needs a return of 40 percent for his one-year investment in a property. He believes that he can sell the property at the end of the year for $150,000 and that the property will provide him with rental income of $25,000. What is the maximum amount that Genaro should be willing to pay for the property?

The best measure of assessing the risk of an investment is its variance.