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Exam 11: Risk and Return

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Question 51

Multiple Choice

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Given the following information, what is the expected return on a portfolio that is invested 30 percent in both Stocks A and C, and 40 percent in Stock B?

A) 9.44 percent
B) 11.3 percent
C) 10.69 percent
D) 9.2 percent
E) 8.78 percent

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Question 52

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A stock has a beta of 1.32 and an expected return of 12.8 percent.The risk-free rate is 3.6 percent.What is the slope of the security market line?

A) 6.49 percent
B) 7.28 percent
C) 6.97 percent
D) 9.03 percent
E) 7.99 percent

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Question 53

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A stock has a beta of 1.10, an expected return of 12.11 percent, and lies on the security market line.A risk-free asset is yielding 3.2 percent.You want to create a portfolio valued at $12,000 consisting of Stock A and the risk-free security such that the portfolio beta is .80.What rate of return should you expect to earn on your portfolio?

Stock Y has a beta of 1.28 and an expected return of 13.7 percent.Stock Z has a beta of 1.02 and an expected return of 11.4 percent.What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other?

Standard deviation measures _____ risk while beta measures _____ risk.

Stock A has an expected return of 14.4 percent and a beta of 1.21.Stock B has an expected return of 12.87 percent and a beta of 1.06.Both stocks have the same reward-to-risk ratio.What is the risk-free rate?

Southern Wear stock has an expected return of 15.1 percent.The stock is expected to lose 8 percent in a recession and earn 18 percent in a boom.The probabilities of a recession, a normal economy, and a boom are 2 percent, 87 percent, and 11 percent, respectively.What is the expected return on this stock if the economy is normal?

You own a portfolio that is invested as follows: $22,575 of Stock A, $3,750 of Stock B, $12,500 of Stock C, and $5,800 of Stock D. What is the portfolio weight of Stock B?

Which one of the following represents the amount of compensation an investor should expect to receive for accepting the unsystematic risk associated with an individual security?

World United stock currently plots on the security market line and has a beta of 1.04.Which one of the following will increase that stock's rate of return without affecting the risk level of the stock, all else constant?

What is the beta of the following portfolio?

Stock A has a beta of 1.09 while Stock B has a beta of .76 and an expected return of 8.2 percent.What is the expected return on Stock A if the risk-free rate is 4.6 percent and both stocks have equal reward-to-risk premiums?

The risk premium for an individual security is based on which one of the following types of risk?

If a security plots to the right and below the security market line, then the security has ____ systematic risk than the market and is ____.

Diversifying a portfolio across various sectors and industries might do more than one of the following.However, this diversification must do which one of the following?

Assume the economy has an 18 percent chance of booming, a 3 percent chance of being recessionary, and being normal the remainder of the time.A stock is expected to return 16.8 percent in a boom, 12.9 percent in a normal economy, and -4.5 percent in a recession.What is the expected rate of return on this stock?

Given the following information, what is the standard deviation of the returns on a portfolio that is invested 35 percent in both Stocks A and C, and 30 percent in Stock B?

A portfolio is:

A portfolio has an expected return of 13.4 percent.This portfolio contains two stocks and one risk-free security.The expected return on Stock X is 12.2 percent and on Stock Y it is 19.3 percent.The risk-free rate is 4.1 percent.The portfolio value is $48,000 of which $10,000 is the risk-free security.How much is invested in Stock X?