You are comparing share A to share B. Given the following information, which one of these two shares should you prefer and why? $\begin{array} { | l | l | l | l | } \hline & & \multicolumn{2}{|l|} { \text { Rate of Return if State Occurs } } \\ \hline \text { State of Economy } & \text { Probability of State of Economy } & \text { Share A } & \text { Share B } \\ \hline \text { Boom } & 60 \% & 9 \% & 15 \% \\ \hline \text { Recession } & 40 \% & 4 \% & 6 \% \\ \hline \end{array}$

A) Share A; because it has an expected return of 7% and appears to be more risky. B) Share A; because it has a higher expected return and appears to be less risky than share B. C) Share A; because it has a slightly lower expected return but appears to be signiﬁcantly Less risky than share B. D) Share B; because it has a higher expected return and appears to be just slightly more risky Than share A. E) Share B; because it has a higher expected return and appears to be less risky than share A. A) Share A; because it has an expected return of 7% and appears to be more risky. B) Share A; because it has a higher expected return and appears to be less risky than share B. C) Share A; because it has a slightly lower expected return but appears to be signiﬁcantly Less risky than share B. D) Share B; because it has a higher expected return and appears to be just slightly more risky Than share A. E) Share B; because it has a higher expected return and appears to be less risky than share A.

What is the standard deviation of a portfolio which is comprised of $€ 4,500$ invested in share S and $63.000$ in share T? $\begin{array} { | l | l | l | l | } \hline & & \multicolumn{2}{|c|} { \text { Returns if State Occurs } } \\ \hline \text { State of Economy } & \text { Probability of State of Economy } & \text { Share S } & \text { Share T } \\ \hline \text { Boom } & 10 \% & 12 \% & 4 \% \\ \hline \text { Normal } & 65 \% & 9 \% & 6 \% \\ \hline \text { Recession } & 25 \% & 2 \% & 9 \% \\ \hline \end{array}$

A) 1.4% B) 1.9% C) 2.6% D) 5.7% E) 7.2% A) 1.4% B) 1.9% C) 2.6% D) 5.7% E) 7.2%

You own a portfolio with the following expected returns given the various states of the economy. what is the overall portfolio expected return? $\begin{array} { | l | l | l | } \hline \text { State of Economy } & \text { Probability of State of Economy } & \text { Rate of Return if State Occurs } \\ \hline \text { Boom } & 15 \% & 18 \% \\ \hline \text { Normal } & 60 \% & 11 \% \\ \hline \text { Recession } & 25 \% & 10 \% \\ \hline \end{array}$

A) 6.3% B) 6.8% C) 7.6% D) 10.0% E) 10.8% A) 6.3% B) 6.8% C) 7.6% D) 10.0% E) 10.8%

What is the expected return on a portfolio comprised of $€ 3,000$ in share K and $\in 5,000$ in share L if the economy is normal? $\begin{array} { | l | l | l | l | } \hline & & \text { Returns if State Occurs } \\ \hline \text { State of Economy } & \text { Probability of State of Economy } & \text { Share K } & \text { Share L } \\ \hline \text { Boom } & 20 \% & 14 \% & 10 \% \\ \hline \text { Normal } & 80 \% & 5 \% & 6 \% \\ \hline \end{array}$

A) 3.75% B) 5.25% C) 5.63% D) 5.88% E) 6.80% A) 3.75% B) 5.25% C) 5.63% D) 5.88% E) 6.80%

What is the expected return on this portfolio? $\begin{array} { | l | l | l | l | } \hline \text { Share } & \text { Expected Return } & \text { Number of Shares } & \text { Share Price } \\ \hline \mathrm { A } & 8 \% & 520 & € 25 \\ \hline \mathrm { B } & 15 \% & 300 & € 48 \\ \hline \mathrm { C } & 6 \% & 250 & € 26 \\ \hline \end{array}$

A) 9.50% B) 9.67% C) 9.78% D) 10.59% E) 10.87% A) 9.50% B) 9.67% C) 9.78% D) 10.59% E) 10.87%

What is the beta of a portfolio comprised of the following securities? $\begin{array} { | l | l | l | } \hline \text { Share } & \text { Amount Invested } & \text { Security Beta } \\ \hline \mathrm { A } & € 2,000 & 1.20 \\ \hline \mathrm { B } & € 3,000 & 1.46 \\ \hline \mathrm { C } & € 5,000 & .72 \\ \hline \end{array}$

A) 1.008 B) 1.014 C) 1.038 D) 1.067 E) 1.127 A) 1.008 B) 1.014 C) 1.038 D) 1.067 E) 1.127

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

Which one of the following shares is correctly priced (rounded up to one decimal place) if the riskfree rate of return is $3.6 \%$ and the market rate of return is $10.5 \%$ ? $Which one of the following shares is correctly priced (rounded up to one decimal place) if the riskfree rate of return is 3.6 \% and the market rate of return is 10.5 \% ?$

(Multiple Choice)

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Question 101

You are comparing share A to share B. Given the following information, which one of these two shares should you prefer and why? \multicolumn 2 |l| Rate of Return if State Occurs State of Economy Probability of State of Economy Share A Share B Boom 60\% 9\% 15\% Recession 40\% 4\% 6\%

(Multiple Choice)

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Question 102

What is the standard deviation of a portfolio which is comprised of $€ 4,500$ invested in share S and $63.000$ in share T? \multicolumn 2 |c| Returns if State Occurs State of Economy Probability of State of Economy Share S Share T Boom 10\% 12\% 4\% Normal 65\% 9\% 6\% Recession 25\% 2\% 9\%

(Multiple Choice)

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Question 103

You have a portfolio of two risky shares which turns out to have no diversiﬁcation beneﬁt.The reason you have no diversiﬁcation is the returns:

(Multiple Choice)

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Question 104

You own a portfolio with the following expected returns given the various states of the economy. what is the overall portfolio expected return? State of Economy Probability of State of Economy Rate of Return if State Occurs Boom 15\% 18\% Normal 60\% 11\% Recession 25\% 10\%

(Multiple Choice)

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Question 105

What is the expected return on a portfolio comprised of $€ 3,000$ in share K and $\in 5,000$ in share L if the economy is normal? Returns if State Occurs State of Economy Probability of State of Economy Share K Share L Boom 20\% 14\% 10\% Normal 80\% 5\% 6\%

(Multiple Choice)

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Question 106

Why are some risks diversiﬁable and some nondiversiﬁable? Give an example of each.

(Essay)

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Question 107

The slope of an asset's security market line is the:

(Multiple Choice)

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Question 108

The elements along the diagonal of the variance/covariance matrix are:

(Multiple Choice)

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Question 109

A portfolio contains two assets.The ﬁrst asset comprises 40% of the portfolio and has a beta of 1.2. The other asset has a beta of 1.5.The portfolio beta is

(Multiple Choice)

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Question 110

A share with an actual return that lies above the security market line:

(Multiple Choice)

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Question 111

Which one of the following would indicate a portfolio is being effectively diversiﬁed?

(Multiple Choice)

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Question 112

What is the expected return on this portfolio? Share Expected Return Number of Shares Share Price 8\% 520 25 15\% 300 48 6\% 250 26

(Multiple Choice)

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Question 113

The amount of systematic risk present in a particular risky asset, relative to the systematic risk present in an average risky asset, is called the particular asset's:

(Multiple Choice)

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Question 114

The excess return earned by an asset that has a beta of 1.0 over that earned by a risk-free asset is referred to as the:

(Multiple Choice)

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Question 115

You have a €1,000 portfolio which is invested in shares A and B plus a risk-free asset.€400 is invested in shareA.Share A has a beta of 1.3 and share B has a beta of 0.7.How much needs to be Invested in share B if you want a portfolio beta of 0.90?

(Multiple Choice)

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Question 116

What is the beta of a portfolio comprised of the following securities? Share Amount Invested Security Beta 2,000 1.20 3,000 1.46 5,000 .72

(Multiple Choice)

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Question 117

The Capital Market Line is the pricing relationship between:

(Multiple Choice)

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Question 118

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

Which one of the following shares is correctly priced (rounded up to one decimal place) if the riskfree rate of return is 3.6%3.6 \%3.6% and the market rate of return is 10.5%10.5 \%10.5% ?

You are comparing share A to share B. Given the following information, which one of these two shares should you prefer and why? \multicolumn 2 |l| Rate of Return if State Occurs State of Economy Probability of State of Economy Share A Share B Boom 60\% 9\% 15\% Recession 40\% 4\% 6\%

You have a portfolio of two risky shares which turns out to have no diversiﬁcation beneﬁt.The reason you have no diversiﬁcation is the returns:

You own a portfolio with the following expected returns given the various states of the economy. what is the overall portfolio expected return? State of Economy Probability of State of Economy Rate of Return if State Occurs Boom 15\% 18\% Normal 60\% 11\% Recession 25\% 10\%

What is the expected return on a portfolio comprised of €3,000€ 3,000€3,000 in share K and ∈5,000\in 5,000∈5,000 in share L if the economy is normal? Returns if State Occurs State of Economy Probability of State of Economy Share K Share L Boom 20\% 14\% 10\% Normal 80\% 5\% 6\%

Why are some risks diversiﬁable and some nondiversiﬁable? Give an example of each.

The slope of an asset's security market line is the:

The elements along the diagonal of the variance/covariance matrix are:

A portfolio contains two assets.The ﬁrst asset comprises 40% of the portfolio and has a beta of 1.2. The other asset has a beta of 1.5.The portfolio beta is

A share with an actual return that lies above the security market line:

Which one of the following would indicate a portfolio is being effectively diversiﬁed?

What is the expected return on this portfolio? Share Expected Return Number of Shares Share Price 8\% 520 25 15\% 300 48 6\% 250 26

The amount of systematic risk present in a particular risky asset, relative to the systematic risk present in an average risky asset, is called the particular asset's:

The excess return earned by an asset that has a beta of 1.0 over that earned by a risk-free asset is referred to as the:

You have a €1,000 portfolio which is invested in shares A and B plus a risk-free asset.€400 is invested in shareA.Share A has a beta of 1.3 and share B has a beta of 0.7.How much needs to be Invested in share B if you want a portfolio beta of 0.90?

What is the beta of a portfolio comprised of the following securities? Share Amount Invested Security Beta 2,000 1.20 3,000 1.46 5,000 .72

The Capital Market Line is the pricing relationship between:

Introduction to Corporate Finance

Corporate Governance

Financial Statement Analysis

Discounted Cash Flow Valuation

Bond, Equity and Firm Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options and Capital Budgeting

Risk and Return: Lessons From Market History

Factor Models and the Arbitrage Pricing Theory

Risk, Cost of Capital and Capital Budgeting

Efficient Capital Markets and Behavioural Finance

Long-Term Financing: an Introduction

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Equity Financing

Debt Financing

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Financial Risk Management With Derivatives

Short-Term Finance and Planning

Short-Term Capital Management

Mergers and Acquisitions

Financial Distress

International Corporate Finance

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What is the expected return on a portfolio comprised of $€ 3,000$ in share K and $\in 5,000$ in share L if the economy is normal? Returns if State Occurs State of Economy Probability of State of Economy Share K Share L Boom 20\% 14\% 10\% Normal 80\% 5\% 6\%