Exam 8: Analysis of Risk and Return

An investor plans to invest 75 percent of her funds in the common stock of Gamma Industries and 25 percent in Epsilon Company.The expected return on Gamma is 12 percent and the expected return on Epsilon is 16 percent.The standard deviation of returns for Gamma is 8 percent and for Epsilon is 12 percent.The correlation between the returns for Gamma and Epsilon is +0.8.Determine the expected return on the investor's portfolio.

The risk premium for an individual security is equal to the

The maturity premium reflects a preference by many lenders for

Which of the following is not an approach for managing risk:

Assume you want to construct a portfolio with a 14 percent return from the following two securities: What percentage of your portfolio should be invested in Security 1?

Beta is defined as:

Why is risk an increasing function of time?

Which of the following would be considered a risk-free investment?

An investor, who believes the economy is slowing down, wishes to reduce the risk of her portfolio.She currently owns 12 securities, each with a market value of $3,000.The current beta of the portfolio is 1.21 and the beta of the riskiest security is 1.62.What will the portfolio beta be if the riskiest security is replaced with a security of equal market value but a beta of 0.80?

Recalling the meaning and calculation of beta, a security that is completely uncorrelated (ρj,m = 0) with the market portfolio would have a beta of

The expected rate of return for the coming year on FTC common stock is normally distributed with a mean of 14% and a standard deviation of 7%.Determine the probability of earning more than 21% on FTC common stock.(Note: Table V is required to work this problem.)

The is a statistical measure of the mean or average value of the possible outcomes.

The slope of the characteristic line for a specific security is an estimate of for that security.

Phoenix Company common stock is currently selling for $20 per share.Security analysts at Smith Blarney have assigned the following probability distribution to the price of (and rate of return on) Phoenix stock one year from now: Assuming that Phoenix is not expected to pay any dividends during the coming year, determine the coefficient of variation for the rate of return on Phoenix stock.

The security market line can be thought of as expressing relationships between required rates of return and

An increase in uncertainty regarding the future economic outlook has the effect of .

Don has $3,000 invested in AT&T with an expected return of 11.6 percent;$10,000 in IBM with an expected return of 12.8 percent;and $6,000 in GM with an expected return of 12.2 percent.What is Don's expected return on his portfolio?

A diversified portfolio has many stocks as opposed to a single stock.Diversification can occur with a little as stocks.

HDTV has planned on diversifying into the dual-VCR field.As a result, HDTV's beta would rise to 1.6 from 1.2 and the expected future long-term growth rate in the firm's earnings would increase from 12% to 16%.The expected market return, km, is 14%;the risk free rate, rf, is 7%;and the current dividend, Do, is $0.50.Should HDTV go into the dual-VCR field?

Which of the following (if any) is a relative (rather than absolute) measure of risk?