Exam 10: Risk and Return: the Capital Asset Pricing Model

Share A has an expected return of 20%, and share B has an expected return of 4%.However, the risk of share A as measured by its variance is 3 times that of share B.If the two shares are Combined equally in a portfolio, what would be the portfolio's expected return?

For a highly diversified equally weighted portfolio with a large number of securities, the portfolio variance is:

The market risk premium is computed by:

The expected return on a share that is computed using economic probabilities is:

According to the Capital Asset Pricing Model:

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

Which one of the following shares is correctly priced (rounded up to one decimal place) if the risk-free rate of return is 2.5 % and the market risk premium is 8%? Share Beta Expected Return A 68 8.2\% B 1.42 13.9\% C 1.23 11.8\% D 1.31 12.6\% E 94 9.7\%

Which one of the following is an example of unsystematic risk?

The equity of Big Joe's has a beta a 1.14 and an expected return of 11.6%.The risk-free rate of return is 4%.What is the expected return on the market?

If a share portfolio is well diversified, then the portfolio variance:

When shares with the same expected return are combined into a portfolio:

The correlation between shares A and B is the:

A well-diversified portfolio has negligible:

The principle of diversification tells us that:

The risk-free rate of return is 4% and the market risk premium is 8%.What is the expected rate of return on a share with a beta of 1.28?

What is the variance of a portfolio consisting of $€ 3,500$ in share G and $\in 6,500$ in share H? \multicolumn 2 |l| Returns if State Occurs State of Economy Probability of State of Economy Share G Share H Boom 15\% 15\% 9\% Normal 85\% 8\% 6\%

You recently purchased a share that is expected to earn 12% in a booming economy, 8% in a normal economy and lose 5% in a recessionary economy.There is a 15% probability of a boom, a 75% Chance of a normal economy, and a 10% chance of a recession.What is your expected rate of return On this share?

The primary purpose of portfolio diversification is to:

Unsystematic risk:

What is the expected return on portfolio which is invested 20% in share A, 50% in share B, and 30% in share C? \multicolumn 3 |l| Rate of Return if State Occurs State of Economy Probability of State of Economy Share A Share B Share C Boom 20\% 18\% 9\% 6\% Normal 70\% 11\% 7\% 9\% Recession 10\% -10\% 4\% 13\%