Exam 12: Return, Risk, and the Security Market Line

The stock of Healthy Eating, Inc., has a beta of .88. The risk-free rate is 3.8 percent and the market return is 9.6 percent. What is the expected return on Healthy Eating's stock?

Which one of the following terms is the measure of the tendency of two things to move or vary together?

The following portfolio has an expected return of _____ percent and a beta of _____.

Which one of the following statements applies to unsystematic risk?

According to the systematic risk principle, the reward for bearing risk is based on which one of the following types of risk?

Stock A is a risky asset that has a beta of 1.4 and an expected return of 13.2 percent. Stock B is also a risky asset and has a beta of 1.25. The risk-free rate is 5.5 percent. Assuming both stocks are correctly priced, what is the expected return on stock B?

What is the covariance of security A to the market given the following information?

Which one of the following has the highest expected risk premium?

Where will a security plot in relation to the security market line (SML) if it has a beta of 1.1 and is overvalued?

A stock with which one of the following betas has an expected return that most resembles the overall market expected rate of return?

Which one of the following announcements is most apt to cause the price of a firm's stock to increase?

Stocks D, E, and F have actual reward-to-risk ratios of 7.1, 6.8, and 7.4, respectively. Given this, you know for certain that:

Uptown Markets stock has a standard deviation of 16.8 percent and a covariance with the market of .0178. The market has a standard deviation of 13.6 percent. What is the correlation of this stock with the market?

A risky security has a variance of .035109 and a covariance with the market of .0222. The variance of the market is .019538. What is the correlation of the risky security to the market?

Which one of the following terms is another name for systematic risk?

The market has a standard deviation of 10.8 percent (0.108) while a risky security has a standard deviation of 22.5 (0.225) percent. The covariance of the stock with the market is .0149. What is the beta of the stock?

The market has an expected return of 11.4 percent and a risky asset with a beta of 1.18 has an expected return of 13 percent. Based on this information, what is the pure time value of money?

The common stock of Industrial Technologies has an expected return of 15.6 percent. The market return is 11.2 percent and the risk-free return is 4.6 percent. What is the stock's beta?

A security has a zero covariance with the market. This means that:

Which two of the following determine how sensitive a security is relative to movements in the overall market? I. the standard deviation of the security II. correlation between the security's return and the market return III. the volatility of the security relative to the market IV. the amount of unsystematic risk inherent in the security