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

You own 40 shares of stock A, which has a price of $15 per share, and 200 shares of stock B, which has a price of $2 per share. What is the portfolio weight for stock A in your portfolio?

Which of the following is a true statement?

The weights that are commonly used when computing the expected return of a portfolio given various economic scenarios are based on the expected returns of the securities within the portfolio.

You own a portfolio with the following expected returns given the various states of the economy. What is the overall portfolio expected return?

What is the standard deviation of a portfolio that is invested 40% in stock Q and 60% in stock R?

If you invest in stocks with higher-than-average betas, you are certain to earn higher-than-average returns over the next year.

What is the portfolio expected return with 125% invested in A and the remainder in the risk-free asset via borrowing at the risk-free rate?

Market risk premium is needed to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset.

Which one of the following statements is correct concerning the standard deviation of a portfolio?

If the actual return on an investment is different from the expected return, then it is likely that:

What is the expected market return if the expected return on asset A is 16% and the risk-free rate is 7%? Asset A has a beta of 1.2.

The return anticipated on a risky asset in the future is the ____________ return.

You believe that the possible returns on stock A will be either 25% or -15% over the coming year, depending on whether the economy does well or does poorly. Given some probabilities of the future state of the economy, you compute the standard deviation of the possible returns. To get the dispersion of the possible outcomes in the same units as the outcomes themselves (i.e., in %), you must then compute the variance.

The risk that can be diversified is also called:

Provide a graphical representation of a high versus low stock betas. Clearly identify which stock has the highest and lowest betas.

Which of the following is the best definition of portfolio?

A portfolio is _________________.

Which of A and B has the least total risk? The least systematic risk?

The reward-to-risk ratio for Stock X exceeds that of Stock Y. Stock X has a beta of 1.37 and Stock Y has a beta of.98. Given this, you know for certain that:

Which of the following is the best definition of market risk premium?