Exam 9: Analysis of Risk and Return

A ____ probability distribution assigns probabilities to a limited number of outcomes.

What will happen to the Security Market Line if (1) inflation expectations increase and (2) investors become more risk averse?

The risk premium for an individual security is equal to the ____.

AKA's stock is currently selling for $11.44. This year the firm had earnings per share of $2.80, and the current dividend is $0.68. Earnings are expected to grow 7% a year in the foreseeable future. The risk-free rate is 10%, and the expected market return is 14.2%. What will be the effect on the price of AKA's stock if systematic risk increases by 40%, all other factors remaining constant?

The slope of the characteristic line for a specific security is an estimate of ____ for that security.

A set of numbers that is ____ will have a ____ standard deviation.

The ____ correlated the returns from two securities are, the ____ will be the portfolio effects of risk reduction.

A beta value of 0.5 for a security indicates that the security has ____.

Over the 10-year period from 1978 through 1987, the compound annual rate of return on U.S. Treasury bills was 9.17%. Over the same time period, the average annual inflation rate was 6.39%. Therefore, the ____.

Phoenix Company common stock is currently selling for $20 per share. Security analysts at Smith Blarney have assigned the following probability distribution to the price of (and rate of return on) Phoenix stock one year from now: Price Rate of Return Probability \ 16 -20\% 0.25 \ 20 0\% 0.30 \ 24 +20\% 0.25 \ 28 +40\% 0.20 Assuming that Phoenix is not expected to pay any dividends during the coming year, determine the expected rate of return on Phoenix Stock.

An important risk dimension other than variability of returns that motivates investors is ____.

A security that is completely uncorrelated (ρ_j,m = 0) with the market portfolio would have a beta of ____.

The following yields on 20-year bonds prevailed in January for the three securities shown: Aa-rated corporate bond 9.98\% Baa-rated corporate bond 10.34\% B-rated corporate bond 11.12\% The difference in yields is due primarily to ____ risk premium.

Phoenix Company common stock is currently selling for $20 per share. Security analysts at Smith Blarney have assigned the following probability distribution to the price of (and rate of return on) Phoenix stock one year from now: Price Rate of Return Probability \ 16 -20\% 0.25 \ 20 0\% 0.30 \ 24 +20\% 0.25 \ 28 +40\% 0.20 Assuming that Phoenix is not expected to pay any dividends during the coming year, determine the coefficient of variation for the rate of return on Phoenix stock.

The risk-free rate of return can be thought of as consisting of ____ and ____.

Business risk is influenced by all the following factors EXCEPT ____.

Find beta, and determine the required rate of return. The market risk premium is 12%, and the risk-free rate is 5%. ? Comparative Returns in the Market Returns on the Stock 8\% 4\% 9\% 10\% 2\% 1\% 10\% 6\%

A diversified portfolio has many stocks, as opposed to a single stock. Diversification can occur with as few as ____ stocks.

An investor plans to invest 75% of her funds in the common stock of Gamma Industries and 25% in Epsilon Company. The expected return on Gamma is 12%, and the expected return on Epsilon is 16%. The standard deviation of returns for Gamma is 8% and for Epsilon is 12%. The correlation between the returns for Gamma and Epsilon is +0.8. Determine the expected return on the investor's portfolio.

The expected rate of return for 3COM is 18%, with a standard deviation of 10.98%. The expected rate of return for Just the Fax is 26%, with a standard deviation of 15.86%. Which firm would be considered the riskier from a total risk perspective?