You have the following data on three stocks: \[\begin{array} { l l l } \underline{\text { Stock } }& \underline{\text { Standard Deviation }} & \underline{\text { Beta } }\\ \text { A } & 20 \% & 0.59 \\ \text { B } & 10 \% & 0.61 \\ \text { C } & 12 \% & 1.29 \end{array}\] If you are a strict risk minimizer, you would choose Stock if it is to be held in isolation and Stock if it is to be held as part of a well-diversified portfolio.

A) A; A. B) A; B. C) B; A. D) C; A. E) C; B. A) A; A. B) A; B. C) B; A. D) C; A. E) C; B.

Data for Dana Industries is shown below. Now Dana acquires some risky assets that cause its beta to increase by 30%. In addition, expected inflation increases by 2.00%. What is the stock's new required rate of return? \[\begin{array} { l r r } \text { Initial beta } & 1.00 & \\ \text { Initial required return } \left( \mathrm { r } _ { \mathrm { s } } \right) & & 10.20 \% \\ \text { Market risk premium, } \mathrm { RP } _ { \mathrm { M } } && 6.00 \% \\ \text { Percentage increase in beta } && 30.00 \% \\ \text { Increase in inflation premium, IP } & &2.00 \% \end{array}\]

A) 14.00% B) 14.70% C) 15.44% D) 16.21% E) 17.02% A) 14.00% B) 14.70% C) 15.44% D) 16.21% E) 17.02%

Exam 8: Risk and Rates of Return

Stocks A and B each have an expected return of 15%, a standard deviation of 20%, and a beta of 1.2. The returns on the two stocks have a correlation coefficient of +0.6. You have a portfolio that consists of 50% A and 50% B. Which of the following statements is CORRECT?

(Multiple Choice)

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Question 41

Which of the following statements is CORRECT?

(Multiple Choice)

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Question 42

Stock X has a beta of 0.5 and Stock Y has a beta of 1.5. Which of the following statements must be true, according to the CAPM?

(Multiple Choice)

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Question 43

A firm can change its beta through managerial decisions, including capital budgeting and capital structure decisions.

(True/False)

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Question 44

You have the following data on three stocks: A 20\% 0.59 B 10\% 0.61 C 12\% 1.29 If you are a strict risk minimizer, you would choose Stock if it is to be held in isolation and Stock if it is to be held as part of a well-diversified portfolio.

(Multiple Choice)

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Question 45

Which of the following statements is CORRECT?

(Multiple Choice)

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Question 46

Assume that the risk-free rate, rRF, increases but the market risk premium, (rM − rRF), declines with the net effect being that the overall required return on the market, rM , remains constant. Which of the following statements is CORRECT?

(Multiple Choice)

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Question 47

Assume that investors have recently become more risk averse, so the market risk premium has increased. Also, assume that the risk-free rate and expected inflation have not changed. Which of the following is most likely to occur?

(Multiple Choice)

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Question 48

A portfolio's risk is measured by the weighted average of the standard deviations of the securities in the portfolio. It is this aspect of portfolios that allows investors to combine stocks and thus reduce the riskiness of their portfolios.

(True/False)

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Question 49

If an investor buys enough stocks, he or she can, through diversification, eliminate all of the market risk inherent in owning stocks, but as a general rule it will not be possible to eliminate all diversifiable risk.

(True/False)

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Question 50

Which of the following statements is CORRECT? (Assume that the risk-free rate is a constant.)

(Multiple Choice)

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Question 51

Variance is a measure of the variability of returns, and since it involves squaring the deviation of each actual return from the expected return, it is always larger than its square root, the standard deviation.

(True/False)

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Question 52

Stock HB has a beta of 1.5 and Stock LB has a beta of 0.5. The market is in equilibrium, with required returns equaling expected returns. Which of the following statements is CORRECT?

(Multiple Choice)

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Question 53

Which of the following is most likely to occur as you add randomly selected stocks to your portfolio, which currently consists of 3 average stocks?

(Multiple Choice)

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Question 54

Data for Dana Industries is shown below. Now Dana acquires some risky assets that cause its beta to increase by 30%. In addition, expected inflation increases by 2.00%. What is the stock's new required rate of return? Initial beta 1.00 Initial required return 10.20\% Market risk premium, 6.00\% Percentage increase in beta 30.00\% Increase in inflation premium, IP 2.00\%

(Multiple Choice)

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Question 55

Which of the following statements is CORRECT?

(Multiple Choice)

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Question 56

Which of the following statements best describes what you should expect if you randomly select stocks and add them to your portfolio?

(Multiple Choice)

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Question 57

Assume that the risk-free rate is 6% and the market risk premium is 5%. Given this information, which of the following statements is CORRECT?

(Multiple Choice)

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Question 58

The CAPM is a multi-period model that takes account of differences in securities' maturities, and it can be used to determine the required rate of return for any given level of systematic risk.

(True/False)

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Question 59

Stocks A, B, and C all have an expected return of 10% and a standard deviation of 25%. Stocks A and B have returns that are independent of one another, i.e., their correlation coefficient, r, equals zero. Stocks A and C have returns that are negatively correlated with one another, i.e., r is less than 0. Portfolio AB is a portfolio with half of its money invested in Stock A and half in Stock B. Portfolio AC is a portfolio with half of its money invested in Stock A and half invested in Stock C. Which of the following statements is CORRECT?

(Multiple Choice)

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Question 60

Showing 41 - 60 of 145

Stocks A and B each have an expected return of 15%, a standard deviation of 20%, and a beta of 1.2. The returns on the two stocks have a correlation coefficient of +0.6. You have a portfolio that consists of 50% A and 50% B. Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Stock X has a beta of 0.5 and Stock Y has a beta of 1.5. Which of the following statements must be true, according to the CAPM?

A firm can change its beta through managerial decisions, including capital budgeting and capital structure decisions.

You have the following data on three stocks: A 20\% 0.59 B 10\% 0.61 C 12\% 1.29 If you are a strict risk minimizer, you would choose Stock if it is to be held in isolation and Stock if it is to be held as part of a well-diversified portfolio.

Which of the following statements is CORRECT?

Assume that the risk-free rate, rRF, increases but the market risk premium, (rM − rRF), declines with the net effect being that the overall required return on the market, rM , remains constant. Which of the following statements is CORRECT?

Assume that investors have recently become more risk averse, so the market risk premium has increased. Also, assume that the risk-free rate and expected inflation have not changed. Which of the following is most likely to occur?

A portfolio's risk is measured by the weighted average of the standard deviations of the securities in the portfolio. It is this aspect of portfolios that allows investors to combine stocks and thus reduce the riskiness of their portfolios.

If an investor buys enough stocks, he or she can, through diversification, eliminate all of the market risk inherent in owning stocks, but as a general rule it will not be possible to eliminate all diversifiable risk.

Which of the following statements is CORRECT? (Assume that the risk-free rate is a constant.)

Variance is a measure of the variability of returns, and since it involves squaring the deviation of each actual return from the expected return, it is always larger than its square root, the standard deviation.

Stock HB has a beta of 1.5 and Stock LB has a beta of 0.5. The market is in equilibrium, with required returns equaling expected returns. Which of the following statements is CORRECT?

Which of the following is most likely to occur as you add randomly selected stocks to your portfolio, which currently consists of 3 average stocks?

Which of the following statements is CORRECT?

Which of the following statements best describes what you should expect if you randomly select stocks and add them to your portfolio?

Assume that the risk-free rate is 6% and the market risk premium is 5%. Given this information, which of the following statements is CORRECT?

The CAPM is a multi-period model that takes account of differences in securities' maturities, and it can be used to determine the required rate of return for any given level of systematic risk.

An Overview of Financial Management

Financial Markets and Institutions

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

The Value of Money

Interest Rates

Bonds and Their Valuation

Stocks and Their Valuation

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Capital Structure and Leverage

Distributions to Shareholders: Dividends and Share Repurchases

Working Capital Management

Financial Planning and Forecasting

Multinational Financial Management

Financial and Operating Leverage: Analysis and Calculation

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