Exam 8: Analysis of Risk and Return

The risk-free rate of return can be thought of as consisting of the following two components:

The security returns from multinational companies tend to have systematic risk than domestic companies.

The coefficient of variation is a(n) measure of risk.

Correlation is a statistical measure of the relationship between a series of numbers representing data.Which of the following statements about correlation is/are correct?

The correlated the returns from two securities are, the will be the portfolio effects of risk reduction.

Find beta and determine the required rate of return.The market risk premium is 12% and the risk-free rate is 5%. Camparative Returns in the Market Return on the Stack 8\% 4\% 9\% 10\% 2\% 1\% 10\% 6\%

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 a negative rate of return (i.e.less than 0%) on FTC common stock.(Note: Table V is required to work this problem.)

The term structure of interest rates is related to the .

The ability of an investor to buy and sell a company's securities quickly and without a significant loss of value is known as the

The return expected from a risky investment is 24 percent, and the standard deviation of this return is 17 percent.If returns from this investment are normally distributed, what is the probability that the investment may earn a negative rate of return? (Note: Table V is required to work this problem.)

When comparing two equal-sized investments, the is an appropriate measure of total risk.

All other things being equal, what is the major impact that an increase in the expected inflation rate would be expected to have on the security market line?

An investor, by investing in combinations of stocks, develops a portfolio

Determine the beta of a portfolio consisting of equal investments in the following common stocks: Securty Bete Apple Computer 1.15 Coca-Cola 1.05 Harley-Devidson 1.50 Hamestalke Mining 0.50

On the capital market line (CML), any risk-return combination beyond the Market Portfolio (m) is obtained by ____.

The two elements that make up the risk-free rate of return are

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 standard deviation of returns for this investor's portfolio.

Total risk of a security can be viewed as consisting of two parts.Which of the following apply?

Quick Start, Inc.is expected to pay a dividend of $1.05 next year and dividends are expected to continue their 7 percent annual growth rate.The SML has been estimated as follows: Kⱼ = 0.08 + 0.064βⱼ If Quick Start has a beta of 1.1, what would happen to its stock price if inflation expectations went from the current 5 percent to 8 percent?

Determine the beta of a portfolio consisting of the following common stocks: