You have the following data on three stocks: \[\begin{array} { c c c } \text { Stock } & \text { Standard Deviation } & \text { Beta } \\ \text { A } & 0.15 & 0.79 \\ \text { B } & 0.25 & 0.61 \\ \text { C } & 0.20 & 1.29 \end{array}\] As a risk minimizer,you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.

A) A; B. B) B; C. C) C; A. D) C; B. E) A; A. A) A; B. B) B; C. C) C; A. D) C; B. E) A; A.

You have the following data on (1)the average annual returns of the market for the past 5 years and (2)similar information on Stocks A and B.Which of the possible answers best describes the historical betas for A and B? \[\begin{array} { c r c c } \underline{\text { Years }} & \underline { \text { Market } } & \underline { \text { Stock A } } &\underline{ \text { Stock B }}\\ 1 & 0.03 & 0.16 & 0.05 \\ 2 & - 0.05 & 0.20 & 0.05 \\ 3 & 0.01 & 0.18 & 0.05 \\ 4 & - 0.10 & 0.25 & 0.05 \\ 5 & 0.06 & 0.14 & 0.05 \end{array}\]

A) bA > +1; bB = 0. B) bA = 0; bB = ?1. C) bA B = 0. D) bA B = 1. E) bA > 0; bB = 1. A) bA > +1; bB = 0. B) bA = 0; bB = ?1. C) bA B = 0. D) bA B = 1. E) bA > 0; bB = 1.

Exam 3: Risk and Return: Part Ii

Explore all topics

You have the following data on three stocks: Stock Standard Deviation Beta A 0.15 0.79 B 0.25 0.61 C 0.20 1.29 As a risk minimizer,you would choose Stock if it is to be held in isolation and Stock if it is to be held as part of a well-diversified portfolio.

(Multiple Choice)

4.8/5

(45)

Question 21

In a portfolio of three different stocks,which of the following could NOT be true?

(Multiple Choice)

4.9/5

(39)

Question 22

Consider the information below for Postman Builders Inc.Suppose that the expected inflation rate and thus the inflation premium increase by 2.0 percentage points,and Postman acquires risky assets that increase its beta by the indicated percentage.What is the firm's new required rate of return? Beta: 1.50 Required return 10.20\% RPM: 6.00\% Percentage increase in beta: 20\%

(Multiple Choice)

4.9/5

(41)

Question 23

Assume an economy in which there are three securities: Stock A with r_A = 10% and σ_A = 10%; Stock B with r_B = 15% and σ_B = 20%; and a riskless asset with r_RF = 7%.Stocks A and B are uncorrelated (r_AB = 0).Which of the following statements is most CORRECT?

(Multiple Choice)

4.9/5

(39)

Question 24

The CAPM is a multi-period model which takes account of differences in securities' maturities,and it can be used to determine the required rate of return for any given level of systematic risk.

(True/False)

4.9/5

(36)

Question 25

It is possible for a firm to have a positive beta,even if the correlation between its returns and those of another firm are negative.

(True/False)

4.9/5

(42)

Question 26

For markets to be in equilibrium (that is,for there to be no strong pressure for prices to depart from their current levels),

(Multiple Choice)

4.9/5

(30)

Question 27

The slope of the SML is determined by the value of beta.

(True/False)

4.8/5

(45)

Question 28

Suppose that (1)investors expect a 4.0% rate of inflation in the future, (2)the real risk-free rate is 3.0%, (3)the market risk premium is 5.0%, (4)Talcott Inc.'s beta is 1.00,and (5)its realized rate of return has averaged 15.0% over the last 5 years.Calculate the required rate of return for Talcot Inc.

(Multiple Choice)

4.8/5

(46)

Question 29

The Y-axis intercept of the SML indicates the return on an individual asset when the realized return on an average (b = 1)stock is zero.

(True/False)

4.9/5

(46)

Question 30

You have the following data on (1)the average annual returns of the market for the past 5 years and (2)similar information on Stocks A and B.Which of the possible answers best describes the historical betas for A and B? 1 0.03 0.16 0.05 2 -0.05 0.20 0.05 3 0.01 0.18 0.05 4 -0.10 0.25 0.05 5 0.06 0.14 0.05

(Multiple Choice)

4.7/5

(35)

Question 31

In portfolio analysis,we often use ex post (historical)returns and standard deviations,despite the fact that we are interested in ex ante (future)data.

(True/False)

4.8/5

(41)

Question 32

Stock A has an expected return r_A = 10% and σ_A = 10%.Stock B has r_B = 14% and σ_B = 15%.r_AB = 0.The rate of return on riskless assets is 6%. a.Construct a graph that shows the feasible and efficient sets, giving consideration to the existence of the riskless asset. b.Explain what would happen to the CML if the two stocks had (a) a positive correlation coefficient or (b) a negative correlation coefficient. c.Suppose these were the only three securities (A, B, and riskless) in the economy, and everyone's indifference curves were such that they were tangent to the CML to the right of the point where the CML was tangent to the efficient set of risky assets. Would this represent a stable equilibrium? If not, how would an equilibrium be produced?

(Essay)

4.7/5

(34)

Question 33

Which of the following statements is CORRECT?

(Multiple Choice)

4.9/5

(34)

Question 34

Showing 21 - 34 of 34

Exam 3: Risk and Return: Part Ii

You have the following data on three stocks: Stock Standard Deviation Beta A 0.15 0.79 B 0.25 0.61 C 0.20 1.29 As a risk minimizer,you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.

In a portfolio of three different stocks,which of the following could NOT be true?

Assume an economy in which there are three securities: Stock A with rA = 10% and σA = 10%; Stock B with rB = 15% and σB = 20%; and a riskless asset with rRF = 7%.Stocks A and B are uncorrelated (rAB = 0).Which of the following statements is most CORRECT?

The CAPM is a multi-period model which takes account of differences in securities' maturities,and it can be used to determine the required rate of return for any given level of systematic risk.

It is possible for a firm to have a positive beta,even if the correlation between its returns and those of another firm are negative.

For markets to be in equilibrium (that is,for there to be no strong pressure for prices to depart from their current levels),

The slope of the SML is determined by the value of beta.

The Y-axis intercept of the SML indicates the return on an individual asset when the realized return on an average (b = 1)stock is zero.

In portfolio analysis,we often use ex post (historical)returns and standard deviations,despite the fact that we are interested in ex ante (future)data.

Which of the following statements is CORRECT?

An Overview of Financial Management and the Financial Environment

Risk and Return: Part I

Bond Valuation

Financial Options

Accounting for Financial Management

Analysis of Financial Statements

Basic Stock Valuation

Corporate Valuation and Financial Planning

Corporate Governance

Determining the Cost of Capital

Capital Budgeting: Decision Rules

Cash Flow Estimation and Risk Analysis

Real Options

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Dynamic Capital Structures and Corporate Valuation

Initial Public Offerings, investment Banking, and Financial Restructuring

Lease Financing

Hybrid Financing: Preferred Stock, Warrants, and Convertibles

Supply Chains and Working Capital Management

Providing and Obtaining Credit

Advanced Issues in Cash Management and Inventory Control

Enterprise Risk Management

Bankruptcy, reorganization, and Liquidation

Mergers and Corporate Control

Multinational Financial Management

Time Value of Money

Basic Financial Tools: a Review

Pension Plan Management

Financial Management in Not-For-Profit Businesses

a Values of the Areas Under the Standard Normal

Filters

You have the following data on three stocks: Stock Standard Deviation Beta A 0.15 0.79 B 0.25 0.61 C 0.20 1.29 As a risk minimizer,you would choose Stock if it is to be held in isolation and Stock if it is to be held as part of a well-diversified portfolio.

Assume an economy in which there are three securities: Stock A with r_A = 10% and σ_A = 10%; Stock B with r_B = 15% and σ_B = 20%; and a riskless asset with r_RF = 7%.Stocks A and B are uncorrelated (r_AB = 0).Which of the following statements is most CORRECT?