A) Can be effectively eliminated through portfolio diversification. B) Is compensated for by the risk premium. C) Is measured by beta. D) Cannot be avoided if you wish to participate in the financial markets. E) Is related to the overall economy. A) Can be effectively eliminated through portfolio diversification. B) Is compensated for by the risk premium. C) Is measured by beta. D) Cannot be avoided if you wish to participate in the financial markets. E) Is related to the overall economy.

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

You would like to combine a risky stock with a beta of 1.8 with Treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market. What percentage of the portfolio should be invested in Treasury bills?

(Multiple Choice)

4.8/5

(37)

Question 81

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

(True/False)

4.8/5

(48)

Question 82

The principle of diversification states that spreading an investment over a number of assets will eliminate:

(Multiple Choice)

4.8/5

(34)

Question 83

Unsystematic risk is rewarded by the marketplace.

(True/False)

4.9/5

(31)

Question 84

An investment firm is considering a portfolio with equal weighting in a cyclical stock and a countercyclical stock. It is expected that there will be three economic states; Good, Average and Bad, each with equal probabilities of occurrence. The cyclical stock is expected to have returns of 12%, 5% and 1% in Good, Average and Bad economies respectively. The countercyclical stock is expected to have returns of -8%, 2% and 14% in Good, Average and Bad economies respectively. Given this information, calculate portfolio expected return.

(Multiple Choice)

4.8/5

(29)

Question 85

You own the following portfolio of stocks. What is the portfolio weight of stock C?

(Multiple Choice)

4.7/5

(33)

Question 86

The majority of the benefits from portfolio diversification can generally be achieved with just _____ diverse securities.

(Multiple Choice)

4.9/5

(40)

Question 87

Assume all of the stocks in a given industry fall as a result of an announcement about the general health of the economy. This is an example of systematic risk.

(True/False)

4.8/5

(32)

Question 88

The market risk premium of an individual security is dependent upon the market rate of return.

(True/False)

4.8/5

(28)

Question 89

What is the standard deviation of a portfolio which is invested 20% in stock A, 30% in stock B and 50% in stock C?

(Multiple Choice)

4.8/5

(30)

Question 90

According to the CAPM, the expected return on a risky asset depends on three components. Describe each component, and explain its role in determining expected return.

(Essay)

4.7/5

(28)

Question 91

The reward for bearing risk in the financial markets is called:

(Multiple Choice)

4.9/5

(39)

Question 92

The Capital Asset Pricing Model (CAPM) assumes that a risk-free asset generally has a positive rate of return.

(True/False)

4.8/5

(34)

Question 93

Which security has the greatest systematic risk?

(Multiple Choice)

4.9/5

(45)

Question 94

The expected return on a portfolio:

(Multiple Choice)

4.8/5

(34)

Question 95

The expected return on Justus, Inc. stock is 15.63% while the expected return on the market is 12.4%. The beta of Justus's stock is 1.48. What is the risk-free rate of return?

(Multiple Choice)

4.9/5

(34)

Question 96

Unsystematic risk:

(Multiple Choice)

4.9/5

(34)

Question 97

You have a $1,000 portfolio which is invested in stocks A and B plus a risk-free asset. $400 is invested in stock A. Stock A has a beta of 1.3 and stock B has a beta of.7. How much needs to be invested in stock B if you want a portfolio beta of.90?

(Multiple Choice)

4.7/5

(27)

Question 98

Asset A has an expected return of 15%. The expected market return is 14% and the risk-free rate is 4%. What is asset A's beta?

(Multiple Choice)

4.9/5

(34)

Question 99

The ____________ return is that portion of total return attributable to information surprises.

(Multiple Choice)

4.7/5

(32)

Question 100

Showing 81 - 100 of 416

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

You would like to combine a risky stock with a beta of 1.8 with Treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market. What percentage of the portfolio should be invested in Treasury bills?

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

The principle of diversification states that spreading an investment over a number of assets will eliminate:

Unsystematic risk is rewarded by the marketplace.

You own the following portfolio of stocks. What is the portfolio weight of stock C?

The majority of the benefits from portfolio diversification can generally be achieved with just _____ diverse securities.

Assume all of the stocks in a given industry fall as a result of an announcement about the general health of the economy. This is an example of systematic risk.

The market risk premium of an individual security is dependent upon the market rate of return.

What is the standard deviation of a portfolio which is invested 20% in stock A, 30% in stock B and 50% in stock C?

According to the CAPM, the expected return on a risky asset depends on three components. Describe each component, and explain its role in determining expected return.

The reward for bearing risk in the financial markets is called:

The Capital Asset Pricing Model (CAPM) assumes that a risk-free asset generally has a positive rate of return.

Which security has the greatest systematic risk?

The expected return on a portfolio:

The expected return on Justus, Inc. stock is 15.63% while the expected return on the market is 12.4%. The beta of Justus's stock is 1.48. What is the risk-free rate of return?

Unsystematic risk:

You have a $1,000 portfolio which is invested in stocks A and B plus a risk-free asset. $400 is invested in stock A. Stock A has a beta of 1.3 and stock B has a beta of.7. How much needs to be invested in stock B if you want a portfolio beta of.90?

Asset A has an expected return of 15%. The expected market return is 14% and the risk-free rate is 4%. What is asset A's beta?

The ____________ return is that portion of total return attributable to information surprises.

Introduction to Corporate Finance

Financial Statements, Cash Flow, and Taxes

Working With Financial Statements

Long-Term Financial Planning and Corporate Growth

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Lessons From Capital Market History

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Dividend Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Enterprise Risk Management

Options and Corporate Securities

Behavioural Finance: Implications for Financial Management

Filters