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Exam 13: Return, Risk, and the Security Market Line

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Question 31

Multiple Choice

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The expected return on JK stock is 15.78 percent while the expected return on the market is 11.34 percent.The stock's beta is 1.51.What is the risk-free rate of return?

A) 2.22 percent
B) 2.31 percent
C) 2.42 percent
D) 2.50 percent
E) 2.63 percent

F) D) and E)
G) A) and B)

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Question 32

Multiple Choice

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At a minimum,which of the following would you need to know to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset? I.asset's standard deviation II.asset's beta III.risk-free rate of return IV.market risk premium

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

F) B) and E)
G) C) and D)

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Question 33

Multiple Choice

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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?

The standard deviation of a portfolio:

Which one of the following statements is correct?

The systematic risk of the market is measured by:

Which one of the following is the best example of a diversifiable risk?

Which one of the following will be constant for all securities if the market is efficient and securities are priced fairly?

You own a stock that you think will produce a return of 11 percent in a good economy and 3 percent in a poor economy.Given the probabilities of each state of the economy occurring,you anticipate that your stock will earn 6.5 percent next year.Which one of the following terms applies to this 6.5 percent?

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

You own a portfolio equally invested in a risk-free asset and two stocks.One of the stocks has a beta of 1.9 and the total portfolio is equally as risky as the market.What is the beta of the second stock?

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?

What is the expected return and standard deviation for the following stock?

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.

Standard deviation measures which type of risk?

According to CAPM,the amount of reward an investor receives for bearing the risk of an individual security depends upon the:

Jerilu Markets has a beta of 1.09.The risk-free rate of return is 2.75 percent and the market rate of return is 9.80 percent.What is the risk premium on this stock?

The standard deviation of a portfolio:

Which one of the following is a risk that applies to most securities?

Suppose you observe the following situation: Assume the capital asset pricing model holds and stock A's beta is greater than stock B's beta by 0.21.What is the expected market risk premium?