Exam 13: Return, Risk, and the Security Market Line

Which of the following statements concerning risk are correct? I.Nondiversifiable risk is measured by beta. II.The risk premium increases as diversifiable risk increases. III.Systematic risk is another name for nondiversifiable risk. IV.Diversifiable risks are market risks you cannot avoid.

What is the expected return on a portfolio comprised of $6,200 of stock M and $4,500 of stock N if the economy enjoys a boom period?

What is the standard deviation of the returns on a $30,000 portfolio which consists of stocks S and T? Stock S is valued at $21,000.

Suzie owns five different bonds valued at $36,000 and twelve different stocks valued at $82,500 total.Which one of the following terms most applies to Suzie's investments?

The rate of return on the common stock of Lancaster Woolens is expected to be 21 percent in a boom economy,11 percent in a normal economy,and only 3 percent in a recessionary economy.The probabilities of these economic states are 10 percent for a boom,70 percent for a normal economy,and 20 percent for a recession.What is the variance of the returns on this common stock?

Steve has invested in twelve different stocks that have a combined value today of $121,300.Fifteen percent of that total is invested in Wise Man Foods.The 15 percent is a measure of which one of the following?

Which one of the following is most directly affected by the level of systematic risk in a security?

What is the expected return on a portfolio which is invested 25 percent in stock A,55 percent in stock B,and the remainder in stock C?

The _____ tells us that the expected return on a risky asset depends only on that asset's nondiversifiable risk.

You own a portfolio that has $2,000 invested in Stock A and $3,500 invested in Stock B.The expected returns on these stocks are 14 percent and 9 percent,respectively.What is the expected return on the portfolio?

You want your portfolio beta to be 0.90.Currently,your portfolio consists of $4,000 invested in stock A with a beta of 1.47 and $3,000 in stock B with a beta of 0.54.You have another $9,000 to invest and want to divide it between an asset with a beta of 1.74 and a risk-free asset.How much should you invest in the risk-free asset?

The expected return on a stock computed using economic probabilities is:

The expected risk premium on a stock is equal to the expected return on the stock minus the:

The common stock of Alpha Manufacturers has a beta of 1.14 and an actual expected return of 15.26 percent.The risk-free rate of return is 4.3 percent and the market rate of return is 12.01 percent.Which one of the following statements is true given this information?

The excess return earned by an asset that has a beta of 1.34 over that earned by a risk-free asset is referred to as the:

The capital asset pricing model (CAPM)assumes which of the following? I.a risk-free asset has no systematic risk. II.beta is a reliable estimate of total risk. III.the reward-to-risk ratio is constant. IV.the market rate of return can be approximated.

According to CAPM,the expected return on a risky asset depends on three components.Describe each component and explain its role in determining expected return.

Which one of the following should earn the most risk premium based on CAPM?

Which one of the following is the formula that explains the relationship between the expected return on a security and the level of that security's systematic risk?

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