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

For an individual investor,the ideal portfolio could best be described as the portfolio that

The variance of Stock A is 0.005492,the variance of Stock B is 0.012394,and the covariance between the two is 0.0034.What is the correlation coefficient?

A portfolio is equally weighted.Stock D has a standard deviation of 11.7,percent and Stock E has a standard deviation of 5.9 percent.The securities have a covariance of 0.0254.What is the portfolio variance?

The dominant portfolio with the lowest possible level of risk out of a set of portfolios consisting of two securities is referred to as the

A portfolio consists of 35 percent of Stock S and 65 percent of Stock T.Stock S is expected to return 15 percent if the economy booms,10 percent if it is normal,and lose 19 percent if it is recessionary.Stock T will return 26 percent in a boom,15 percent in a normal economy,and lose 40 percent in a recession.The probability of a boom is 5 percent and probability of a recession is 10 percent.What is the portfolio standard deviation?

If there is no diversification benefit derived from combining two risky stocks into one portfolio,then the

If a stock portfolio is well diversified,then the portfolio variance

A portfolio is expected to return 18 percent in a booming economy,13 percent in a normal economy,and lose 11 percent if the economy falls into a recession.The probability of a boom is 3 percent while the probability of a recession is 25 percent.What is the overall portfolio expected return?

A negative covariance between the returns of Stock A and Stock B indicates that

The probabilities of an economic boom,normal economy,and a recession are 2 percent,93 percent,and 5 percent,respectively.For these economic states,Stock A has deviations from its expected returns of 0.04,0.07,and −0.11 for the three economic states respectively.Stock B has deviations from its expected returns of 0.14,0.08,and −0.22 for the three economic states,respectively.What is the covariance of the two stocks?

A portfolio is invested 54 percent in Stock K and 46 percent in Bond L.The bond has an expected return of 6.85 percent.What is the expected rate of return on Stock K if the portfolio expected return is 10.25 percent?

The primary purpose of portfolio diversification is to

The covariance of two securities is

The standard deviation of a portfolio will tend to increase when

You plotted the monthly rate of return for two securities against time for the past 48 months.If the pattern of the movements of these two sets of returns rose and fell together the majority,but not all,of the time,then the securities have

A stock with an actual return that lies above the security market line has

Systematic risk is measured by

Which statement correctly applies to the feasible set of returns for a portfolio consisting of domestic stocks,A and B? Assume that the expected returns are plotted against standard deviations.

The principle of diversification tells us that

According to the capital asset pricing model,the expected return on a security is