Question 1

Zoom,Inc.stock has a beta of 1.5.The risk-free rate of return is 3.7% and the market rate of return is 9.5%.What is the amount of the risk premium on Zoom stock?

Accepted Answer

A)  5.8% B
B)  8.7%
C)  9.5%
D)  10.25%
E)  14.25%F) A) and C)
G) None of the above B

Question 2

The slope of an asset's security market line is the:

Accepted Answer

A)  reward-to-risk ratio.
B)  portfolio weight.
C)  beta coefficient.
D)  risk-free interest rate.
E)  market risk premium.F) B) and C)
G) A) and E)

Question 3

Beta measures:

Accepted Answer

A)  the ability to diversify risk.
B)  how an asset covaries with the market.
C)  the actual return on an asset.
D)  the standard deviation of the assets' returns.
E)  All of the above.F) C) and D)
G) None of the above

Question 4

The risk-free rate of return is 4% and the market risk premium is 8%.What is the expected rate of return on a stock with a beta of 1.28?

Accepted Answer

A)  9.12%
B)  10.24%
C)  13.12%
D)  14.24%
E)  15.36%F) C) and E)
G) A) and E)

Question 5

Which one of the following would indicate a portfolio is being effectively diversified?

Accepted Answer

A)  an increase in the portfolio beta
B)  a decrease in the portfolio beta
C)  an increase in the portfolio rate of return
D)  an increase in the portfolio standard deviation
E)  a decrease in the portfolio standard deviationF) C) and D)
G) B) and C)

Question 6

Zelo,Inc.stock has a beta of 1.23.The risk-free rate of return is 4.5% and the market rate of return is 10%.What is the amount of the risk premium on Zelo stock?

Accepted Answer

A)  4.47%
B)  5.50%
C)  5.54%
D)  6.77%
E)  12.30%F) B) and E)
G) A) and E)

Question 7

The primary purpose of portfolio diversification is to:

Accepted Answer

A)  increase returns and risks.
B)  eliminate all risks.
C)  eliminate asset-specific risk.
D)  eliminate systematic risk.
E)  lower both returns and risks.F) B) and E)
G) None of the above

Question 8

Which one of the following is an example of a nondiversifiable risk?

Accepted Answer

A)  a well-respected president of a firm suddenly resigns
B)  a well-respected chairman of the Federal Reserve suddenly resigns
C)  a key employee suddenly resigns and accepts employment with a key competitor
D)  a well-managed firm reduces its work force and automates several jobs
E)  a poorly managed firm suddenly goes out of business due to lack of salesF) A) and E)
G) B) and D)

Question 9

Which one of the following statements is correct concerning the expected rate of return on an individual stock given various states of the economy?

Accepted Answer

A)  The expected return is a geometric average where the probabilities of the economic states are used as the exponential powers.
B)  The expected return is an arithmetic average of the individual returns for each state of the economy.
C)  The expected return is a weighted average where the probabilities of the economic states are used as the weights.
D)  The expected return is equal to the summation of the values computed by dividing the expected return for each economic state by the probability of the state.
E)  As long as the total probabilities of the economic states equal 100%,then the expected return on the stock is a geometric average of the expected returns for each economic state.F) None of the above
G) A) and E)

Question 10

The systematic risk of the market is measured by:

Accepted Answer

A)  a beta of 1.0.
B)  a beta of 0.0.
C)  a standard deviation of 1.0.
D)  a standard deviation of 0.0.
E)  a variance of 1.0.F) A) and C)
G) None of the above

Question 11

If a stock portfolio is well diversified,then the portfolio variance:

Accepted Answer

A)  will equal the variance of the most volatile stock in the portfolio.
B)  may be less than the variance of the least risky stock in the portfolio.
C)  must be equal to or greater than the variance of the least risky stock in the portfolio.
D)  will be a weighted average of the variances of the individual securities in the portfolio.
E)  will be an arithmetic average of the variances of the individual securities in the portfolio.F) A) and B)
G) B) and D)

Question 12

According to the CAPM:

Accepted Answer

A)  the expected return on a security is negatively and non-linearly related to the security's beta.
B)  the expected return on a security is negatively and linearly related to the security's beta.
C)  the expected return on a security is positively and linearly related to the security's variance.
D)  the expected return on a security is positively and non-linearly related to the security's beta.
E)  the expected return on a security is positively related to the security's beta.F) A) and E)
G) C) and D)

Question 13

Your portfolio is comprised of 30% of stock X,50% of stock Y,and 20% of stock Z.Stock X has a beta of .64,stock Y has a beta of 1.48,and stock Z has a beta of 1.04.What is the beta of your portfolio?

Accepted Answer

A)  1.01
B)  1.05
C)  1.09
D)  1.14
E)  1.18F) A) and C)
G) A) and B)

Question 14

The correlation between two stocks:

Accepted Answer

A)  can take on positive values.
B)  can take on negative values.
C)  cannot be greater than 1.
D)  cannot be less than -1.
E)  All of the above.F) B) and E)
G) C) and D)

Question 15

When a security is added to a portfolio the appropriate return and risk contributions are:

Accepted Answer

A)  the expected return of the asset and its standard deviation.
B)  the expected return and the variance.
C)  the expected return and the beta.
D)  the historical return and the beta.
E)  these both cannot be measured.F) B) and D)
G) A) and E)

Question 16

What is the beta of a portfolio comprised of the following securities?

Accepted Answer

A)  1.008
B)  1.014
C)  1.038
D)  1.067
E)  1.127F) A) and B)
G) None of the above

Question 17

In the first chapter,it was stated that financial managers should act to maximize shareholder wealth.Why are the efficient markets hypothesis (EMH),the CAPM,and the SML so important in the accomplishment of this objective?

Accepted Answer

In simple terms,one could say that maximizing shareholder wealth by maximizing the current share price is a reasonable objective if and only if we have some assurance that observed prices are meaningful;i.e. ,that they reflect the value of the firm.This is a major implication of the EMH.Further,if we are to be able to assess the wealth effects of future decisions on security and firm values,we must have a valuation model whose parameters can be shown to be affected by those decisions.Finally,any valuation model we employ will require us to quantify return and risk.

Question 18

The dominant portfolio with the lowest possible risk is:

Accepted Answer

A)  the efficient frontier.
B)  the minimum variance portfolio.
C)  the upper tail of the efficient set.
D)  the tangency portfolio.
E)  None of the above.F) D) and E)
G) B) and E)

Question 19

As we add more securities to a portfolio,the ____ will decrease:

Accepted Answer

A)  total risk.
B)  systematic risk.
C)  unsystematic risk.
D)  economic risk.
E)  standard error.F) C) and E)
G) D) and E) C

Question 20

A stock with an actual return that lies above the security market line:

Accepted Answer

A)  has more systematic risk than the overall market.
B)  has more risk than warranted based on the realized rate of return.
C)  has yielded a higher return than expected for the level of risk assumed.
D)  has less systematic risk than the overall market.
E)  has yielded a return equivalent to the level of risk assumed.F) None of the above
G) B) and C)

Exam 11: Return and Risk: the Capital Asset Pricing Model

Zoom,Inc.stock has a beta of 1.5.The risk-free rate of return is 3.7% and the market rate of return is 9.5%.What is the amount of the risk premium on Zoom stock?

Correct Answer
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B

The slope of an asset's security market line is the:

Correct Answer
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Beta measures:

Correct Answer
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The risk-free rate of return is 4% and the market risk premium is 8%.What is the expected rate of return on a stock with a beta of 1.28?

Correct Answer
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Which one of the following would indicate a portfolio is being effectively diversified?

Correct Answer
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Zelo,Inc.stock has a beta of 1.23.The risk-free rate of return is 4.5% and the market rate of return is 10%.What is the amount of the risk premium on Zelo stock?

Correct Answer
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The primary purpose of portfolio diversification is to:

Correct Answer
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Which one of the following is an example of a nondiversifiable risk?

Correct Answer
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Which one of the following statements is correct concerning the expected rate of return on an individual stock given various states of the economy?

Correct Answer
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The systematic risk of the market is measured by:

Correct Answer
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If a stock portfolio is well diversified,then the portfolio variance:

Correct Answer
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According to the CAPM:

Correct Answer
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Your portfolio is comprised of 30% of stock X,50% of stock Y,and 20% of stock Z.Stock X has a beta of .64,stock Y has a beta of 1.48,and stock Z has a beta of 1.04.What is the beta of your portfolio?

Correct Answer
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The correlation between two stocks:

Correct Answer
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When a security is added to a portfolio the appropriate return and risk contributions are:

Correct Answer
verified

What is the beta of a portfolio comprised of the following securities?

Correct Answer
verified

In the first chapter,it was stated that financial managers should act to maximize shareholder wealth.Why are the efficient markets hypothesis (EMH),the CAPM,and the SML so important in the accomplishment of this objective?

The dominant portfolio with the lowest possible risk is:

Correct Answer
verified

As we add more securities to a portfolio,the ____ will decrease:

Correct Answer
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C

A stock with an actual return that lies above the security market line:

Correct Answer
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Exam 11: Return and Risk: the Capital Asset Pricing Model

Zoom,Inc.stock has a beta of 1.5.The risk-free rate of return is 3.7% and the market rate of return is 9.5%.What is the amount of the risk premium on Zoom stock?

Correct AnswerverifiedB

The slope of an asset's security market line is the:

Correct AnswerverifiedShow Answer

Beta measures:

Correct AnswerverifiedShow Answer

The risk-free rate of return is 4% and the market risk premium is 8%.What is the expected rate of return on a stock with a beta of 1.28?

Correct AnswerverifiedShow Answer

Which one of the following would indicate a portfolio is being effectively diversified?

Correct AnswerverifiedShow Answer

Zelo,Inc.stock has a beta of 1.23.The risk-free rate of return is 4.5% and the market rate of return is 10%.What is the amount of the risk premium on Zelo stock?

Correct AnswerverifiedShow Answer

The primary purpose of portfolio diversification is to:

Correct AnswerverifiedShow Answer

Which one of the following is an example of a nondiversifiable risk?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct concerning the expected rate of return on an individual stock given various states of the economy?

Correct AnswerverifiedShow Answer

The systematic risk of the market is measured by:

Correct AnswerverifiedShow Answer

If a stock portfolio is well diversified,then the portfolio variance:

Correct AnswerverifiedShow Answer

According to the CAPM:

Correct AnswerverifiedShow Answer

Your portfolio is comprised of 30% of stock X,50% of stock Y,and 20% of stock Z.Stock X has a beta of .64,stock Y has a beta of 1.48,and stock Z has a beta of 1.04.What is the beta of your portfolio?

Correct AnswerverifiedShow Answer

The correlation between two stocks:

Correct AnswerverifiedShow Answer

When a security is added to a portfolio the appropriate return and risk contributions are:

Correct AnswerverifiedShow Answer

What is the beta of a portfolio comprised of the following securities?

Correct AnswerverifiedShow Answer

In the first chapter,it was stated that financial managers should act to maximize shareholder wealth.Why are the efficient markets hypothesis (EMH),the CAPM,and the SML so important in the accomplishment of this objective?

The dominant portfolio with the lowest possible risk is:

Correct AnswerverifiedShow Answer

As we add more securities to a portfolio,the ____ will decrease:

Correct AnswerverifiedC

A stock with an actual return that lies above the security market line:

Correct AnswerverifiedShow Answer

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B

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C

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