Exam 11: Return and Risk: The Capital Asset Pricing Model Capm

A portfolio consists of 200 shares of Stock A,300 shares of Stock B,500 shares of Stock C,and 700 shares of Stock D.The prices of these stocks are $19,$36,$21,and $15 for Stocks A through D,respectively.What is the portfolio weight of Stock C?

The risk premium for an individual security is computed by

A portfolio consists of $38,312 of Stock A,$42,509 of Stock B,and $11,516 of Stock C.The expected returns on Stocks A,B,and C are 6.85 percent,12.08 percent,and 15.92 percent,respectively.What is the portfolio expected rate of return?

Which one of these measures the interrelationship between two securities?

The separation principle states that an investor will

Mr.Rhoades is the CEO of Daily News.The majority of stockholders do not approve of the decisions made by Mr.Rhoades and have repeatedly requested that he be ousted.Over the last couple of months,it has become apparent that the CEO is going to be replaced by a member of the board,Mr.Bentley,who is highly respected.This morning,the official announcement was made that Mr.Rhoades has stepped down and will be replaced immediately by Mr.Bentley.How is the stock price of the Daily News most apt to react to this announcement?

Alpha stock has a beta of 1.29.The risk-free rate of return is 3.2 percent,and the market rate of return is 10.7 percent.What is the Alpha stock risk premium?

Over time,the unexpected return on a company's stock is expected to equal

A portfolio consists of two stocks with Stock A having a weight of 41 percent.Stock A has a standard deviation of 16.78 percent,and Stock B's standard deviation is 8.44 percent.The stocks have a covariance of −0.0063.What is the portfolio variance?

Well-diversified portfolios have negligible

A portfolio worth $5,500 is invested in Stocks A and B plus a risk-free asset.A total of $2,500 is invested in Stock A with a beta of 1.27.Stock B has a beta of 0.89.How much needs to be invested in Stock B if the goal is to create a portfolio that will mimic the entire market?

The Inferior Goods Co.stock is expected to earn 18 percent in a recession,10 percent in a normal economy,and lose 21 percent in a booming economy.The probability of a boom is 22 percent while the probability of a normal economy is 75 percent.What is the expected rate of return on this stock?

A portfolio consists of $18,740 of Stock K and $31,910 of Stock L.Stock K is expected to return 17 percent in a booming economy,lose 6 percent in a recession,and gain 9 percent in a normal economy.Stock L is expected to return 4 percent in a booming economy,13 percent in a recession,and 10 percent in a normal economy.The probability of the economy booming is 16 percent.What is the expected rate of return on the portfolio if the economy enters a recession?

What is the first step an investor takes when making an investment decision according to the separation principle?

The portfolio expected return considers which of the following factors? I.The amount of money currently invested in each individual security II.Various levels of economic activity III.The performance of each stock given various economic scenarios IV.The probability of various states of the economy occurring

The expected return on HiLo stock is 13.36 percent while the expected return on the market is 11.87 percent.The beta of HiLo is 1.14.What is the risk-free rate of return?

The capital market line

A stock with a beta of zero would be expected to have a rate of return equal to

Stock Q is expected to return 14 percent in a boom and 8 percent in a normal economy.Assume Stock R will return 11 percent in a boom and 10 percent in a normal economy.The probability of a boom is 13 percent.Otherwise,the economy will be normal.What is the standard deviation of a portfolio that is invested 48 percent in stock Q and 52 percent in stock R?

The variance of Stock A is 0.007242,the variance of Stock B is 0.020504,and the covariance between the two is 0.0019.What is the correlation coefficient?