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

A) 6.49 percent
B) 8.64 percent
C) 8.87 percent
D) 9.86 percent
E) 10.23 percent

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A) 0.010346
B) 0.012634
C) 0.013420
D) 0.013927
E) 0.014315

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A) Portfolio betas range between -1.0 and +1.0.
B) A portfolio beta is a weighted average of the betas of the individual securities contained in the portfolio.
C) A portfolio beta cannot be computed from the betas of the individual securities comprising the portfolio because some risk is eliminated via diversification.
D) A portfolio of U.S. Treasury bills will have a beta of +1.0.
E) The beta of a market portfolio is equal to zero.

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A) 13.99 percent
B) 14.42 percent
C) 14.67 percent
D) 14.78 percent
E) 15.01 percent

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A) 16.33 percent
B) 18.60 percent
C) 19.67 percent
D) 20.48 percent
E) 21.33 percent

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Standard deviation measures total risk.T...

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A) .95
B) 1.01
C) 1.05
D) 1.09
E) 1.23

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A) is underpriced.
B) is correctly priced.
C) will plot below the security market line.
D) will plot on the security market line.
E) will plot to the right of the overall market on a security market line graph.

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A) 11.48 percent
B) 12.37 percent
C) 13.03 percent
D) 13.42 percent
E) 13.97 percent

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A) 1.08
B) 1.16
C) 1.29
D) 1.32
E) 1.35

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A) 12.38 percent
B) 12.64 percent
C) 12.72 percent
D) 12.89 percent
E) 13.97 percent

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A) 6.31 percent
B) 6.49 percent
C) 7.40 percent
D) 7.83 percent
E) 8.72 percent

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A) Given the unequal weights of both the securities and the economic states, the standard deviation of the portfolio must equal that of the overall market.
B) The weights of the individual securities have no effect on the expected return of a portfolio when multiple states of the economy are involved.
C) Changing the probabilities of occurrence for the various economic states will not affect the expected standard deviation of the portfolio.
D) The standard deviation of the portfolio will be greater than the highest standard deviation of any single security in the portfolio given that the individual securities are well diversified.
E) Given both the unequal weights of the securities and the economic states, an investor might be able to create a portfolio that has an expected standard deviation of zero.

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A) 71 percent
B) 77 percent
C) 84 percent
D) 89 percent
E) 92 percent

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A) stock A is riskier than stock B and both stocks are fairly priced.
B) stock A is less risky than stock B and both stocks are fairly priced.
C) either stock A is underpriced or stock B is overpriced or both.
D) either stock A is overpriced or stock B is underpriced or both.
E) both stock A and stock B are correctly priced since stock A is riskier than stock B.

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A) $3,750.00
B) $4,333.33
C) $4,706.20
D) $4,943.82
E) $5,419.27

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A) increase returns and risks.
B) eliminate all risks.
C) eliminate asset-specific risk.
D) eliminate systematic risk.
E) lower both returns and risks.

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A) The chief financial officer of Sussex unexpectedly resigned.
B) The labor union representing Sussex' employees unexpectedly called a strike.
C) This morning, Sussex confirmed that its CEO is retiring at the end of the year as was anticipated.
D) The price of Sussex stock suddenly declined in value because researchers accidentally discovered that one of the firm's products can be toxic to household pets.
E) The board of directors made an unprecedented decision to give sizeable bonuses to the firm's internal auditors for their efforts in uncovering wasteful spending.

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