Exam 6: The Meaning and Measurement of Risk and Return

Marble Corp.has a beta of 2.5 and a standard deviation of returns of 20%.The return on the market portfolio is 15% and the risk-free rate is 4%.What is the risk premium on the market?

You hold a portfolio with the following securities: What is the expected return for the market,according to the CAPM?

You are considering an investment in Citizens Bank Corp.The firm has a beta of 1.6.Currently,U.S.Treasury bills are yielding 2.75% and the expected return for the S & P 500 is 14%.What rate of return should you expect for your investment in Citizens Bank?

You hold a portfolio made up of the following stocks: If the market's expected return is 14%,and the risk-free rate of return is 5%,what is the expected return of the portfolio?

You are going to invest all of your funds in one of three projects with the following distribution of possible returns: PROJECT 1 PROJECT 2 PROJECT 3 If you are a risk averse investor,which one should you choose?

You are considering investing in Ford Motor Company.Which of the following are examples of diversifiable risk? I.Risk resulting from possibility of a stock market crash. II.Risk resulting from uncertainty regarding a possible strike against Ford. III.Risk resulting from an expensive recall of a Ford product. IV.Risk resulting from interest rates decreasing.

Due to strict stock market controls,the most a stock's value can drop in one trading day is 5%.

For a well-diversified investor,an investment with an expected return of 10% with a standard deviation of 3% dominates an investment with an expected return of 10% with a standard deviation of 5%.

Stock W has the following returns for various states of the economy: Stock W's standard deviation of returns is

An all-stock portfolio is more risky than a portfolio consisting of all bonds.

Which of the following measures the average relationship between a stock's returns and the market's returns?

Stock W has an expected return of 12% with a standard deviation of 8%.If returns are normally distributed,then approximately two-thirds of the time the return on stock W will be

Assume that an investment is forecasted to produce the following returns: a 20% probability of a 12% return; a 50% probability of a 16% return; and a 30% probability of a 19% return.What is the standard deviation of return for this investment?

An investor currently holds the following portfolio: The beta for the portfolio is

You are going to add one of the following three projects to your already well-diversified portfolio. PROJECT 1 PROJECT 2 PROJECT 3 Assume the risk-free rate of return is 2% and the market risk premium is 8%.If you are a risk averse investor,which project should you choose?

Surf and Spray Inc.has a beta equal to 1.8 and a required return of 15% based on the CAPM.If the risk-free rate of return is 4.2%,the expected return on the market portfolio is

Portfolio performance is determined mainly by stock selection and market timing,with less emphasis on asset allocation.

Decker Corp.common stock has a required return of 17.5% and a beta of 1.75.If the expected risk free return is 3%,what is the expected return for the market based on the CAPM?

You must add one of two investments to an already well- diversified portfolio. If you are a risk-averse investor,which one is the better choice?

Asset allocation is not recommended by financial planners because mixing different types of assets,such as stocks with bonds,makes it more difficult to track performance and adjust portfolios to changing market conditions.