Exam 8: Analysis of Risk and Return

Jim Bowles is an investor who believes the economy is gaining strength and, therefore, wishes to increase the risk of his 14 security portfolio.Each security has a current market value of $5,000 and the current beta of the portfolio is 1.02.The beta of the least risky security is .76.If Jim replaces the least risky security with another security with the same market value but a beta of 1.45, what will the portfolio beta be then?

The risk-free rate of return is composed of which of the following elements:

Sally's broker told her that the expected return from her portfolio was 14.2%.If 40% of her securities have an expected return of 10.3 percent and 20% have an expected return of 12.8 percent, what is the expected return of the remaining portion of her portfolio?

All of the following are primary sources of systematic risk except

refers to the ability of an investor to buy and sell a company's securities quickly and without a significant loss of value.

Users of the CAPM should be aware of some of the problems in its practical application.These problems include which of the following?

The term structure of interest rates is the pattern of interest rate yields for debt securities that are similar in all respects except for differences in

Given the following information on securities E and F, calculate the expected return and standard deviation of returns on a portfolio consisting of 40% invested in E and 60% invested in F. Security E Security F Expected Return 12% 5% Standard Deviation of Returns 10% 20% Correlation coefficient of returns -0.50

Security A's expected return is 10 percent while the expected return of B is 14 percent.The standard deviation of A's returns is 5 percent, and it is 9 percent for B.An investor plans to invest equal amounts in A and B.Which of the following statements is true about this portfolio consisting of stock A and stock B.

The most relevant risk that must be considered for any widely traded individual security is its .

Which of the following statements regarding risk is/are correct?

How can standard deviation, a statistical measure of dispersion, be used in investment analysis?

Security A offers an expected return of 14% with a standard deviation of 8%.Security B offers an expected return of 11% with a standard deviation of 6%.If you wish to construct a portfolio with a 12.8% expected return, what percentage of the portfolio will consist of security A?

Lotte Group is planning on diversifying into the transportation industry.As a result, Lotte's beta would rise to 1.3 from 1.1 and the expected long-term growth rate in the firm's earnings would increase from 11% to 14%.Currently the risk-free rate is 5.0% and the market risk premium is 8.6%.If Lotte's current dividend is $1.30, should Lotte diversify into the transportation industry?

Find beta and determine the risk premium.The market risk premium is 8% and the risk-free rate is 2%. Comparative Returns in the Market Returns an the Stack 1[2\% 8\% 11\% 12\% 6\% 2\% 5\% 1\%

The security market line

The business risk of a firm refers to the

The is the ratio of to the .

The default risk premium reflects the fact that

Twin City Knitting (TCK) pays a current dividend of $2.20 and dividends are expected to grow at a rate of 7 percent annually in the foreseeable future.The beta of TCK is 1.2.If the risk-free rate is 9.2 percent and the market risk premium is 6 percent, at what price would you expect TCK's common stock to sell?