Exam 10: Return and Risk: The Capital Asset Pricing Model Capm

What is the standard deviation of the returns on a share given the following information? State of Economy Probability of State of Economy Rate of Return if StateOccurs Boom 10\% 16\% Normal 60\% 11\% Recession 30\% -8\%

Your portfolio is comprised of 30% of share X,50% of share Y,and 20% of share Z.Share X has a beta of .64,share Y has a beta of 1.48,and share Z has a beta of 1.04.What is the beta of your portfolio?

Diversification can effectively reduce risk.Once a portfolio is diversified,the type of risk remaining is:

What is the expected return on a portfolio comprised of €4,000 in share M and €6,000 in share N if the economy enjoys a boom period? $\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad$ Returns if $\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad$ State Occurs State of Economy Probability of State of Economy ShareM Share N Boom 10\% 18\% 10\% Normal 75\% 7\% 8\% Recession 15\% -20\% 6\%

When computing the expected return on a portfolio of shares the portfolio weights are based on the:

Which one of the following would indicate a portfolio is being effectively diversified?

The risk premium for an individual security is computed by:

The risk-free rate of return is 4% and the market risk premium is 8%.What is the expected rate of return on a share with a beta of 1.28?

The correlation between two shares:

The diagram below represents an opportunity set for a two asset combination.Indicate the correct efficient set with labels; explain why it is so.

The rate of return on the shares of Flowers by Flo is expected to be 14% in a boom economy,8% in a normal economy,and only 2% in a recessionary economy.The probabilities of these economic states are 20% for a boom,70% for a normal economy,and 10% for a recession.What is the variance of the returns on the shares of Flowers by Flo?

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

The measure of beta associates most closely with:

A portfolio has 50% of its funds invested in Security One and 50% of its funds invested in Security Two.Security One has a standard deviation of 6.Security Two has a standard deviation of 12.The securities have a coefficient of correlation of 0.5.Which of the following values is closest to portfolio variance?

A share with an actual return that lies above the security market line:

The expected return on a share that is computed using economic probabilities is:

You have plotted the data for two securities over time on the same graph,i.e.,the month return of each security for the last 5 years.If the pattern of the movements of the two securities rose and fell as the other did,these two securities would have:

The market risk premium is computed by:

The beta of a security is calculated by:

The total number of variance and covariance terms in portfolio is N².How many of these would be (including non-unique)covariance's?