GenLabs has been a hot share the last few years,but is risky.The expected returns for GenLabs are highly dependent on the state of the economy as follows: \(\begin{array}{|l|l|l|} \hline \text { State of Economy } & \text { Probability } & \text { GenLabs Returns } \\ \hline \text { Depression } & .05 & -50 \% \\ \hline \text { Recession } & .10 & -15 \% \\ \hline \text { Mild Slowdown } & .20 & 5 \% \\ \hline \text { Normal } & .30 & 15 \% \\ \hline \text { Broad Expansion } & .20 & 25 \% \\ \hline \text { StrongExpansion } & .15 & 40 \%\\ \hline \end{array}\) The standard deviation of GenLabs returns is

A) .0845 B) .2069 C) .3065 D) .3358 E) None of the above. A) .0845 B) .2069 C) .3065 D) .3358 E) None of the above.

You own a portfolio with the following expected returns given the various states of the economy.What is the overall portfolio expected return? \(\begin{array}{|l|l|l|} \hline \text { State of Economy } & \text { Probability of State of Economy } & \text { Rate of Return if StateOccurs } \\ \hline \text { Boom } & 15 \% & 18 \% \\ \hline \text { Normal } & 60 \% & 11 \% \\ \hline \text { Recession } & 25 \% & -10 \% \\ \hline \end{array}\)

A) 6.3% B) 6.8% C) 7.6% D) 10.0% E) 10.8% A) 6.3% B) 6.8% C) 7.6% D) 10.0% E) 10.8%

Which one of the following shares is correctly priced if the risk-free rate of return is 3.6% and the market rate of return is 10.5%? \(\begin{array}{l} \begin{array}{|l|l|l|} \hline Share &Beta &\text { Expected Return }\\ \hline \mathrm{A} & .85 & 9.2 \% \\ \hline \mathrm{B} & 1.08 & 11.8 \% \\ \hline \mathrm{C} & 1.68 & 15.3 \% \\ \hline \mathrm{D} & .71 & 7.8 \% \\ \hline \mathrm{E} & 1.45 & 12.3 \% \\ \hline \end{array} \end{array}\)

A) A B) B C) C D) D E) E A) A B) B C) C D) D E) E

You own the following portfolio of shares.What is the portfolio weight of share C? \(\begin{array}{l} \begin{array}{|l|l|l|} \hline Share& \text { Number of Shares }&\text { Price per Share }\\ \hline \text { A } & 100 & € 22 \\ \hline \mathrm{B} & 600 & € 17 \\ \hline \mathrm{C} & 400 & € 46 \\ \hline \mathrm{D} & 200 & € 38 \\ \hline \end{array} \end{array}\)

A) 30.8% B) 37.4% C) 42.3% D) 45.2% E) 47.9% A) 30.8% B) 37.4% C) 42.3% D) 45.2% E) 47.9%

What is the beta of a portfolio comprised of the following securities? \[\begin{array} { | l | l | l |} \hline \text { Shure } & \text { Amorugt Inverted } & \text { Serurity Bete } \\ \hline \text { A } & € 2,000 & 1.20 \\ \hline \mathrm { B } & €{ 3,000 } & 1.46 \\ \hline \mathrm { B } & €{ 5 } , 000 & .72 \\ \hline \end{array}\]

A) 1.008 B) 1.014 C) 1.038 D) 1.067 E) 1.127 A) 1.008 B) 1.014 C) 1.038 D) 1.067 E) 1.127

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

GenLabs has been a hot share the last few years,but is risky.The expected returns for GenLabs are highly dependent on the state of the economy as follows: State of Economy Probability GenLabs Returns Depression .05 -50\% Recession .10 -15\% Mild Slowdown .20 5\% Normal .30 15\% Broad Expansion .20 25\% StrongExpansion .15 40\% The standard deviation of GenLabs returns is

(Multiple Choice)

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Question 81

We routinely assume that investors are risk-averse return-seekers; i.e.,they like returns and dislike risk.If so,why do we contend that only systematic risk and not total risk is important?

(Essay)

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Question 82

You own a portfolio with the following expected returns given the various states of the economy.What is the overall portfolio expected return? State of Economy Probability of State of Economy Rate of Return if StateOccurs Boom 15\% 18\% Normal 60\% 11\% Recession 25\% -10\%

(Multiple Choice)

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Question 83

According to the Capital Asset Pricing Model:

(Multiple Choice)

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Question 84

A portfolio contains four assets.Asset 1 has a beta of .8 and comprises 30% of the portfolio.Asset 2 has a beta of 1.1 and comprises 30% of the portfolio.Asset 3 has a beta of 1.5 and comprises 20% of the portfolio.Asset 4 has a beta of 1.6 and comprises the remaining 20% of the portfolio.If the riskless rate is expected to be 3% and the market risk premium is 6%,what is the beta of the portfolio?

(Multiple Choice)

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Question 85

A security that is fairly priced will have a return _____ the Security Market Line.

(Multiple Choice)

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Question 86

The dominant portfolio with the lowest possible risk is:

(Multiple Choice)

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Question 87

Which one of the following shares is correctly priced if the risk-free rate of return is 3.6% and the market rate of return is 10.5%? Share Beta Expected Return .85 9.2\% 1.08 11.8\% 1.68 15.3\% .71 7.8\% 1.45 12.3\%

(Multiple Choice)

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Question 88

The characteristic line is graphically depicted as:

(Multiple Choice)

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Question 89

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

(Essay)

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Question 90

Total risk can be divided into:

(Multiple Choice)

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Question 91

The majority of the benefits from portfolio diversification can generally be achieved with just _____ diverse securities.

(Multiple Choice)

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Question 92

The systematic risk of the market is measured by:

(Multiple Choice)

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Question 93

If the correlation between two shares is -1,the returns:

(Multiple Choice)

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Question 94

The standard deviation of a portfolio will tend to increase when:

(Multiple Choice)

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Question 95

The expected return on HiLo equity is 13.69% while the expected return on the market is 11.5%.The beta of HiLo is 1.3.What is the risk-free rate of return?

(Multiple Choice)

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Question 96

You own the following portfolio of shares.What is the portfolio weight of share C? Share Number of Shares Price per Share A 100 22 600 17 400 46 200 38

(Multiple Choice)

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Question 97

The combination of the efficient set of portfolios with a riskless lending and borrowing rate results in:

(Multiple Choice)

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Question 98

What is the beta of a portfolio comprised of the following securities? Shure Amorugt Inverted Serurity Bete A 2,000 1.20 3,000 1.46 5 ,000 .72

(Multiple Choice)

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Question 99

Your portfolio has a beta of 1.18.The portfolio consists of 15% Treasury bills,30% in share A,and 55% in shareb.Share A has a risk-level equivalent to that of the overall market.What is the beta of share B?

(Multiple Choice)

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Question 100

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

We routinely assume that investors are risk-averse return-seekers; i.e.,they like returns and dislike risk.If so,why do we contend that only systematic risk and not total risk is important?

You own a portfolio with the following expected returns given the various states of the economy.What is the overall portfolio expected return? State of Economy Probability of State of Economy Rate of Return if StateOccurs Boom 15\% 18\% Normal 60\% 11\% Recession 25\% -10\%

According to the Capital Asset Pricing Model:

A security that is fairly priced will have a return _____ the Security Market Line.

The dominant portfolio with the lowest possible risk is:

Which one of the following shares is correctly priced if the risk-free rate of return is 3.6% and the market rate of return is 10.5%? Share Beta Expected Return .85 9.2\% 1.08 11.8\% 1.68 15.3\% .71 7.8\% 1.45 12.3\%

The characteristic line is graphically depicted as:

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

Total risk can be divided into:

The majority of the benefits from portfolio diversification can generally be achieved with just _____ diverse securities.

The systematic risk of the market is measured by:

If the correlation between two shares is -1,the returns:

The standard deviation of a portfolio will tend to increase when:

The expected return on HiLo equity is 13.69% while the expected return on the market is 11.5%.The beta of HiLo is 1.3.What is the risk-free rate of return?

You own the following portfolio of shares.What is the portfolio weight of share C? Share Number of Shares Price per Share A 100 22 600 17 400 46 200 38

The combination of the efficient set of portfolios with a riskless lending and borrowing rate results in:

What is the beta of a portfolio comprised of the following securities? Shure Amorugt Inverted Serurity Bete A 2,000 1.20 3,000 1.46 5 ,000 .72

Your portfolio has a beta of 1.18.The portfolio consists of 15% Treasury bills,30% in share A,and 55% in shareb.Share A has a risk-level equivalent to that of the overall market.What is the beta of share B?

Introduction to Corporate Finance

Corporate Governance

Financial Statement Analysis and Long-Term Planning

Discounted Cash Flow Valuation

How to Value Bonds and Shares

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Factor Models and the Arbitrage Pricing Theory

Risk, cost of Capital, and Capital Budgeting

Corporate Financing Decisions and Efficient Capital Markets

Long-Term Financing: An Introduction

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividend and Other Payouts

Equity Financing

Debt Financing

Leasing and Off-Balance-Sheet Financing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Financial Risk Management With Derivatives

Short-Term Finance and Planning

Cash Management

Credit Management

Mergers and Acquisitions

Financial Distress

International Corporate Finance

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