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

The common stock of Manchester & Moore is expected to earn 13 percent in a recession,6 percent in a normal economy,and lose 4 percent in a booming economy.The probability of a boom is 5 percent while the probability of a recession is 45 percent.What is the expected rate of return on this stock?

Which one of the following statements related to risk is correct?

What is the variance of the returns on a portfolio that is invested 60 percent in stock S and 40 percent in stock T?

You have $10,000 to invest in a stock portfolio.Your choices are Stock X with an expected return of 13 percent and Stock Y with an expected return of 8 percent.Your goal is to create a portfolio with an expected return of 12.4 percent.All money must be invested.How much will you invest in stock X?

Which one of the following risks is irrelevant to a well-diversified investor?

You have a portfolio consisting solely of stock A and stock B.The portfolio has an expected return of 9.8 percent.Stock A has an expected return of 11.4 percent while stock B is expected to return 6.4 percent.What is the portfolio weight of stock A?

The expected return on a stock given various states of the economy is equal to the:

How many diverse securities are required to eliminate the majority of the diversifiable risk from a portfolio?

The risk-free rate of return is 3.9 percent and the market risk premium is 6.2 percent.What is the expected rate of return on a stock with a beta of 1.21?

You are comparing stock A to stock B.Given the following information,what is the difference in the expected returns of these two securities?

Explain how the beta of a portfolio can equal the market beta if 50 percent of the portfolio is invested in a security that has twice the amount of systematic risk as an average risky security.

The intercept point of the security market line is the rate of return which corresponds to:

The common stock of United Industries has a beta of 1.34 and an expected return of 14.29 percent.The risk-free rate of return is 3.7 percent.What is the expected market risk premium?

The common stock of Jensen Shipping has an expected return of 14.7 percent.The return on the market is 10.8 percent and the risk-free rate of return is 3.8 percent.What is the beta of this stock?

Which of the following statements are correct concerning diversifiable risks? I.Diversifiable risks can be essentially eliminated by investing in thirty unrelated securities. II.There is no reward for accepting diversifiable risks. III.Diversifiable risks are generally associated with an individual firm or industry. IV.Beta measures diversifiable risk.

Thayer Farms stock has a beta of 1.12.The risk-free rate of return is 4.34 percent and the market risk premium is 7.92 percent.What is the expected rate of return on this stock?

What is the standard deviation of the returns on a portfolio that is invested 52 percent in stock Q and 48 percent in stock R?

The returns on the common stock of New Image Products are quite cyclical.In a boom economy,the stock is expected to return 32 percent in comparison to 14 percent in a normal economy and a negative 28 percent in a recessionary period.The probability of a recession is 25 percent while the probability of a boom is 20 percent.What is the standard deviation of the returns on this stock?

The market has an expected rate of return of 11.2 percent.The long-term government bond is expected to yield 5.8 percent and the U.S.Treasury bill is expected to yield 3.9 percent.The inflation rate is 3.6 percent.What is the market risk premium?

Consider the following information on Stocks I and II: The market risk premium is 8 percent,and the risk-free rate is 3.6 percent.The beta of stock I is _____ and the beta of stock II is _____.