Question 1

Risk-averse investors require higher rates of return on investments whose returns are highly uncertain, and most investors are risk averse.

Accepted Answer

A) True 
 B)False

Question 2

Assume that you hold a well-diversified portfolio that has an expected return of 11.0% and a beta of 1.20.You are in the process of buying 1,000 shares of Omega Corp at $10 a share and adding it to your portfolio.Omega has an expected return of 13.0% and a beta of 1.50.The total value of your current portfolio is $90,000.What will the expected return and beta on the portfolio be after the purchase of the Omega stock?

Accepted Answer

A)  10.64%; 1.17
B)  11.20%; 1.23
C)  11.76%; 1.29
D)  12.35%; 1.36
E)  12.97%; 1.42F) A) and E)
G) B) and C)

Question 3

Moerdyk Company's stock has a beta of 1.40, the risk-free rate is 4.25%, and the market risk premium is 5.50%.What is the firm's required rate of return?

Accepted Answer

A)  11.36%
B)  11.65%
C)  11.95%
D)  12.25%
E)  12.55%F) None of the above
G) A) and E)

Question 4

stock with a beta equal to -1.0 has zero systematic (or market) risk.

Accepted Answer

A) True 
 B)False

Question 5

hold a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each.The portfolio's beta is 1.12.You plan to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 1.80.What will the portfolio's new beta be?

Accepted Answer

A)  1.286
B)  1.255
C)  1.224
D)  1.194
E)  1.165F) A) and B)
G) C) and D)

Question 6

Which of the following statements is CORRECT?

Accepted Answer

A)  A large portfolio of randomly selected stocks will always have a standard deviation of returns that is less than the standard deviation of a portfolio with fewer stocks, regardless of how the stocks in the smaller portfolio are selected.
B)  Diversifiable risk can be reduced by forming a large portfolio, but normally even highly-diversified portfolios are subject to market (or systematic)  risk.
C)  A large portfolio of randomly selected stocks will have a standard deviation of returns that is greater than the standard deviation of a 1-stock portfolio if that one stock has a beta less than 1.0.
D)  A large portfolio of stocks whose betas are greater than 1.0 will have less market risk than a single stock with a beta = 0.8.
E)  If you add enough randomly selected stocks to a portfolio, you can completely eliminate all of the market risk from the portfolio.F) B) and C)
G) C) and E)

Question 7

Stock A has a beta of 1.2 and a standard deviation of 25%.Stock B has a beta of 1.4 and a standard deviation of 20%.Portfolio AB was created by investing in a combination of Stocks A and B.Portfolio AB has a beta of 1.25 and a standard deviation of 18%.Which of the following statements is CORRECT?

Accepted Answer

A)  Stock A has more market risk than Portfolio AB.
B)  Stock A has more market risk than Stock B but less stand-alone risk.
C)  Portfolio AB has more money invested in Stock A than in Stock B.
D)  Portfolio AB has the same amount of money invested in each of the two stocks.
E)  Portfolio AB has more money invested in Stock B than in Stock A.F) A) and E)
G) A) and D)

Exam 6: Risk and Return

Risk-averse investors require higher rates of return on investments whose returns are highly uncertain, and most investors are risk averse.

Correct Answer
verified

hold a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each.The portfolio's beta is 1.12.You plan to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 1.80.What will the portfolio's new beta be?

Correct Answer
verified

Moerdyk Company's stock has a beta of 1.40, the risk-free rate is 4.25%, and the market risk premium is 5.50%.What is the firm's required rate of return?

Correct Answer
verified

stock with a beta equal to -1.0 has zero systematic (or market) risk.

Correct Answer
verified

Stock A has a beta of 1.2 and a standard deviation of 25%.Stock B has a beta of 1.4 and a standard deviation of 20%.Portfolio AB was created by investing in a combination of Stocks A and B.Portfolio AB has a beta of 1.25 and a standard deviation of 18%.Which of the following statements is CORRECT?

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Correct Answer
verified

Exam 6: Risk and Return

Risk-averse investors require higher rates of return on investments whose returns are highly uncertain, and most investors are risk averse.

Correct AnswerverifiedShow Answer

hold a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each.The portfolio's beta is 1.12.You plan to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 1.80.What will the portfolio's new beta be?

Correct AnswerverifiedShow Answer

Moerdyk Company's stock has a beta of 1.40, the risk-free rate is 4.25%, and the market risk premium is 5.50%.What is the firm's required rate of return?

Correct AnswerverifiedShow Answer

stock with a beta equal to -1.0 has zero systematic (or market) risk.

Correct AnswerverifiedShow Answer

Stock A has a beta of 1.2 and a standard deviation of 25%.Stock B has a beta of 1.4 and a standard deviation of 20%.Portfolio AB was created by investing in a combination of Stocks A and B.Portfolio AB has a beta of 1.25 and a standard deviation of 18%.Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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