What is the expected return on a portfolio that is equally weighted between Stocks M and N given the following information? \[\begin{array} { l c c } { \text { State of } } & \text { Probability of } & \text { Rate of Return } \\ \text { Econony } & \text { State of Economy } & \text { if State Occurs } \\ & &\begin{array}{ll}\text { Stock M } & \text { Stock N }\end{array}\\ \text { Boom } & .13& \begin{array}{ll}.18 & \quad \quad -.14\end{array} \\ \text { Normal } & .82 & \begin{array}{ll}.06 & \quad \quad.06\end{array} \\ \text { Recession } & .05 &\begin{array}{ll} -.14 & \quad \quad .18\end{array} \end{array}\]

A) 5.28 percent B) 5.87 percent C) 6.00 percent D) 6.32 percent E) 6.40 percent A) 5.28 percent B) 5.87 percent C) 6.00 percent D) 6.32 percent E) 6.40 percent

What is the standard deviation of the returns on a $30,000 portfolio that consists of Stocks S and T? Stock S is valued at $18,000. \[\begin{array} { l c c } { \text { State of } } & \text { Probability of } & \text { Rate of Return } \\ \text { Econony } & \text { State of Economy } & \text { if State Occurs } \\ & &\begin{array}{ll}\text { Stock S } & \text { Stock T }\end{array}\\ \text { Boom } & .05& \begin{array}{ll}.11& \quad \quad .09\end{array} \\ \text { Normal } & .85 & \begin{array}{ll}.08 & \quad \quad.07\end{array} \\ \text { Bust } & .10&\begin{array}{ll}-.05& \quad \quad .04\end{array} \end{array}\]

A) 2.07 percent B) 2.80 percent C) 3.36 percent D) 2.49 percent E) 3.63 percent A) 2.07 percent B) 2.80 percent C) 3.36 percent D) 2.49 percent E) 3.63 percent

What is the expected return on this portfolio? \[\begin{array} { c c c c } & \text { Expected } & \text { Number } & \text { Price } \\ \text { Stock } & \text { Return } & \text { of Shares } & \text { per Share } \\ \text { A }& .11 & 200 & \$ 18.6 \mathrm { C } \\ \text { B } & 06 & 400 & \$ 12.85 \\ \text { C }& .17 & 300 & \$ 43.90 \end{array}\]

A) 11.48 percent B) 13.42 percent C) 12.03 percent D) 11.56 percent E) 13.97 percent A) 11.48 percent B) 13.42 percent C) 12.03 percent D) 11.56 percent E) 13.97 percent

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

The risk-free rate of return is 2.7 percent, the inflation rate is 3.1 percent, and the market risk premium is 6.9 percent. What is the expected rate of return on a stock with a beta of 1.08?

(Multiple Choice)

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Question 41

The common stock of Manchester & Moore is expected to earn 14 percent in a recession, 7 percent in a normal economy, and lose 4 percent in a booming economy. The probability of a boom is 15 percent while the probability of a recession is 5 percent. What is the expected rate of return on this stock?

(Multiple Choice)

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Question 42

Which one of the following is a risk that applies to most securities?

(Multiple Choice)

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Question 43

What is the expected return on a portfolio that is equally weighted between Stocks M and N given the following information? State of Probability of Rate of Return Econony State of Economy if State Occurs Stock M Stock N Boom .13 .18 -.14 Normal .82 .06 .06 Recession .05 -.14 .18

(Multiple Choice)

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Question 44

Which one of the following statements related to unexpected returns is correct?

(Multiple Choice)

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Question 45

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

(Multiple Choice)

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Question 46

What is the standard deviation of the returns on a $30,000 portfolio that consists of Stocks S and T? Stock S is valued at $18,000. State of Probability of Rate of Return Econony State of Economy if State Occurs Stock S Stock T Boom .05 .11 .09 Normal .85 .08 .07 Bust .10 -.05 .04

(Multiple Choice)

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Question 47

The expected return on a stock given various states of the economy is equal to the:

(Multiple Choice)

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Question 48

Which of the following statements are correct concerning diversifiable risks? I. Diversifiable risks can be essentially eliminated by investing in 30 unrelated securities. II. There is no reward for accepting diversifiable risks. III. Diversifiable risks are generally associated with an individual firm or industry. IV. Beta measures diversifiable risk.

(Multiple Choice)

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Question 49

You want your portfolio beta to be .95. Currently, your portfolio consists of $4,000 invested in Stock A with a beta of 1.26 and $7,000 in Stock B with a beta of .94. You have another $8,000 to invest and want to divide it between an asset with a beta of 1.74 and a risk-free asset. How much should you invest in the risk-free asset?

(Multiple Choice)

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Question 50

The ________ of a security divided by the beta of that security is equal to the slope of the security market line if the security is priced fairly.

(Multiple Choice)

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Question 51

You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.46 and the total portfolio is equally as risky as the market. What is the beta of the second stock?

(Multiple Choice)

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Question 52

Which one of the following is represented by the slope of the security market line?

(Multiple Choice)

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Question 53

The standard deviation of a portfolio:

(Multiple Choice)

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Question 54

Assume the market rate of return is 10.1 percent and the risk-free rate of return is 3.2 percent. Lexant stock has 2 percent less systematic risk than the market and has an actual return of 10.2 percent. This stock:

(Multiple Choice)

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Question 55

Your portfolio is comprised of 36 percent of Stock X, 18 percent of Stock Y, and 46 percent of Stock Z. Stock X has a beta of 1.19, Stock Y has a beta of .87, and Stock Z has a beta of 1.26. What is the beta of your portfolio?

(Multiple Choice)

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Question 56

Your portfolio has a beta of 1.28. The portfolio consists of 35 percent U.S. Treasury bills, 31 percent Stock A, and 34 percent Stock B. Stock A has a risk-level equivalent to that of the overall market. What is the beta of Stock B?

(Multiple Choice)

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Question 57

What is the expected return on this portfolio? Expected Number Price Stock Return of Shares per Share A .11 200 \ 18.6 B 06 400 \ 12.85 C .17 300 \ 43.90

(Multiple Choice)

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Question 58

Steve has invested in twelve different stocks that have a combined value today of $121,300. Fifteen percent of that total is invested in Wise Man Foods. The 15 percent is a measure of which one of the following?

(Multiple Choice)

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Question 59

The excess return earned by an asset that has a beta of 1.34 over that earned by a risk-free asset is referred to as the:

(Multiple Choice)

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Question 60

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

The risk-free rate of return is 2.7 percent, the inflation rate is 3.1 percent, and the market risk premium is 6.9 percent. What is the expected rate of return on a stock with a beta of 1.08?

The common stock of Manchester & Moore is expected to earn 14 percent in a recession, 7 percent in a normal economy, and lose 4 percent in a booming economy. The probability of a boom is 15 percent while the probability of a recession is 5 percent. What is the expected rate of return on this stock?

Which one of the following is a risk that applies to most securities?

What is the expected return on a portfolio that is equally weighted between Stocks M and N given the following information? State of Probability of Rate of Return Econony State of Economy if State Occurs Stock M Stock N Boom .13 .18 -.14 Normal .82 .06 .06 Recession .05 -.14 .18

Which one of the following statements related to unexpected returns is correct?

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

What is the standard deviation of the returns on a $30,000 portfolio that consists of Stocks S and T? Stock S is valued at $18,000. State of Probability of Rate of Return Econony State of Economy if State Occurs Stock S Stock T Boom .05 .11 .09 Normal .85 .08 .07 Bust .10 -.05 .04

The expected return on a stock given various states of the economy is equal to the:

The ________ of a security divided by the beta of that security is equal to the slope of the security market line if the security is priced fairly.

You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.46 and the total portfolio is equally as risky as the market. What is the beta of the second stock?

Which one of the following is represented by the slope of the security market line?

The standard deviation of a portfolio:

Assume the market rate of return is 10.1 percent and the risk-free rate of return is 3.2 percent. Lexant stock has 2 percent less systematic risk than the market and has an actual return of 10.2 percent. This stock:

Your portfolio is comprised of 36 percent of Stock X, 18 percent of Stock Y, and 46 percent of Stock Z. Stock X has a beta of 1.19, Stock Y has a beta of .87, and Stock Z has a beta of 1.26. What is the beta of your portfolio?

Your portfolio has a beta of 1.28. The portfolio consists of 35 percent U.S. Treasury bills, 31 percent Stock A, and 34 percent Stock B. Stock A has a risk-level equivalent to that of the overall market. What is the beta of Stock B?

What is the expected return on this portfolio? Expected Number Price Stock Return of Shares per Share A .11 200 \ 18.6 B 06 400 \ 12.85 C .17 300 \ 43.90

Steve has invested in twelve different stocks that have a combined value today of $121,300. Fifteen percent of that total is invested in Wise Man Foods. The 15 percent is a measure of which one of the following?

The excess return earned by an asset that has a beta of 1.34 over that earned by a risk-free asset is referred to as the:

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working with Financial Statements

Long-Term Financial Planning and 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

Some Lessons from Capital Market History

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

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