Exam 8: Analysis of Risk and Return

All of the following factors have their primary impact on unsystematic risk except

A college student owns two securities: Apple and Coca- Cola.Apple has an expected return of 15 percent with a standard deviation of those returns being 11 percent.Coca-Cola has an expected return of 12 percent, and a standard deviation of 7 percent.The correlation of returns between Apple and Coca-Cola is 0.81.If the portfolio consist of $6,000 in Coca-Cola and $4,000 in Apple, what is the expected standard deviation of portfolio returns?

The the standard deviation, the the investment.

A beta value of 0.5 for a security indicates

AKA's stock is currently selling for $11.44.This year the firm had earnings per share of $2.80 and the current dividend is $0.68.Earnings are expected to grow 7% a year in the foreseeable future.The risk-free rate is 10 percent and the expected market return is 14.2 percent.What will be the effect on the price of AKAs' stock if systematic risk increases by 40 percent, all other factors remaining constant?

What is an efficient portfolio?

The real rate of interest is expected to be 3 percent and the expected rate of inflation for next year is expected to be 5.5 percent.If the default risk premium is 1.1 percentage points, and the seniority risk premium is 0.4 percentage points, what is the required return on a 1 year U.S.Treasury security?

The theory of the yield curve holds that required returns on long-term securities tend to be greater the longer the time to maturity.

Richtex Brick has a current dividend of $1.70 and the market value of its common stock is $28.The expected market return is 13 percent and the risk-free rate is 9 percent.If Richtex stock is half as volatile as the market, and the market is in equilibrium, what rate of growth is expected for Richtex's dividends assuming a constant growth valuation model is appropriate for Richtex?

The risk remaining after extensive diversification is primarily:

That portion of the risk premium that is based on the ability of the borrower to repay principal and interest is the:

An increase in the expected future inflation rate has the effect of .

The risk-free rate of return is 5.51 percent, based on an expected inflation premium of 2.54 percent.The expected return on the market is 12.8 percent.What is the required rate of return for Envoy common stock which has a beta of 1.35?

Over the 10-year period from 1978 through 1987, the compound annual rate of return on U.S.Treasury bills was 9.17 percent.Over the same time period, the average annual inflation rate was 6.39 percent.Therefore,

Explain marketability risk and marketability premium.

Business risk is influenced by all the following factors except:

Micromatic is considering expanding into a new product area.Micromatic's current beta is 1.2 and its beta is expected to increase to 1.45 after the expansion.The long-term growth rate of the firm's earnings is expected to increase from 6.5 percent to 10 percent.Micromatic's current dividend is $1.70 per share, the current risk-free rate is 9.1 percent, and the expected market return is 12.9 percent.Should Micromatic undertake the planned expansion?

Texas Computers (TC) stock has a beta of 1.5 and American Water (AW) stock has a beta of 0.5.Which of the following statements will be true about these securities?