Exam 7: Introduction to Risk and Return

If the standard deviation of returns on the market is 20 percent, and the beta of a well-diversified portfolio is 1.5, calculate the standard deviation of this portfolio.

Which portfolio had the highest average annual return in real terms between 1900 and 2014?

For the most part, stock returns tend to move together.Thus, pairs of stocks tend to have both positive covariances and correlations.

Which portfolio has had the lowest average annual nominal rate of return during the 1900 to 2014 periods?

What has been the average annual real rate of interest on Treasury bills over the past 114 years (from 1900 to 2014)?

Stock A has an expected return of 10 percent per year and stock B has an expected return of 20 percent.If 40 percent of a portfolio's funds are invested in stock A and the rest in stock B, what is the expected return on the portfolio of stock A and stock B?

The risk of a well-diversified portfolio depends on the market risk of the securities included in the portfolio.

Which of the following portfolios will have the highest beta?

The beta of a well-diversified portfolio is equal to the value weighted average beta of the securities included in the portfolio.

For a two-stock portfolio, the maximum reduction in risk occurs when the correlation coefficient between the two stocks equals

The average beta of all stocks in the market is zero.

Which portfolio had the highest standard deviation during the period between 1900 and 2014?

Stock P and Stock Q have had annual returns of -10 percent, 12 percent, and 28 percent; and 8 percent, 13 percent, and 24 percent, respectively.Calculate the covariance of return between the securities.(Ignore the correction for the loss of a degree of freedom set out in the text.)

A risk premium generated by comparing stocks to 10-year U.S.Treasury bonds will be smaller than a risk premium generated by comparing stocks to U.S.Treasury bills.

Low standard deviation stocks always have low betas.

The correlation coefficient between stock B and the market portfolio is 0.8.The standard deviation of stock B is 35 percent and that of the market is 20 percent.Calculate the beta of the stock.

The standard statistical measures of the variability of stock returns are beta and covariance.

The covariance between the returns on two stocks equals the correlation coefficient multiplied by the standard deviations of the two stocks.

What range of values can correlation coefficients take?

How can individual investors diversify?