Exam 6: The Meaning and Measurement of Risk and Return

Wendy purchased 800 shares of Robotics stock at $3 per share on 1/1/09.Wendy sold the shares on 12/31/09 for $3.45.Robotics stock has a beta of 1.3,the risk-free rate of return is 3%,and the market risk premium is 8%.The required return on Robotics stock is

Which of the following is the slope of the security market line?

Assume that you have $100,000 invested in a stock that is returning 14%,$150,000 invested in a stock that is returning 18%,and $200,000 invested in a stock that is returning 15%.What is the expected return of your portfolio?

Total risk equals systematic risk plus unsystematic risk.

The minimum rate of return necessary to attract an investor to purchase or hold a security is referred to as the

Stock A has a beta of 1.2 and a standard deviation of returns of 14%.Stock B has a beta of 1.8 and a standard deviation of returns of 18%.If the risk-free rate of return increases and the market risk premium remains constant,then

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

The characteristic line for any well-diversified portfolio is horizontal.

How does opportunity cost affect an investor's required rate of return?

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

Based on the security market line,Robo-Tech stock has a required return of 14% and Friendly Insurance Company has a required return of 10%.Robo-Tech has a standard deviation of returns of 18%.Therefore,

Variation in the rate of return of an investment is a measure of the riskiness of that investment.

Beta is a statistical measure of

You are considering investing in a project with the following possible outcomes: Calculate the expected rate of return and standard deviation of returns for this investment,respectively.

In an efficient market,a stock with a standard deviation of returns of 12% could have a higher expected return than a stock with a standard deviation of 10% because the beta for the higher standard deviation stock could be lower than the beta for the lower standard deviation stock.

The S&P 500 index must be used as the measure of market return in the CAPM or the results are not theoretically accurate.

You purchased 500 shares of A.M.J.Inc.common stock one year ago for $50 per share.You received a dividend of $2 per share today and decide to take your profits by selling at $54.50 per share.What is your holding period return?

The risk-return trade-off that investors face on a day-to-day basis is based on realized rates of return because expected returns involve too much uncertainty.

The beta of a T-bill is one.

If the beta for stock A equals zero,then