Question 1

Which of the following correctly identifies the factors included in the Fama-French three-factor model?

Accepted Answer

A)  standard deviation, beta, and company size 
B)  the risk-free rate, beta, and the market risk premium 
C)  company size, company industry, and beta 
D)  price-earnings ratios, beta, and book-to-market ratios 
E)  beta, company size, and book-to-market ratios 
A)  standard deviation, beta, and company size 
B)  the risk-free rate, beta, and the market risk premium 
C)  company size, company industry, and beta 
D)  price-earnings ratios, beta, and book-to-market ratios 
E)  beta, company size, and book-to-market ratios

Question 2

You own a portfolio which is invested equally in two stocks and a risk-free security. The stock betas are .89 for Stock A and 1.26 for Stock B. Which one of the following will increase the portfolio beta, all else constant?

Accepted Answer

A)  increasing the amount invested in the risk-free security 
B)  decreasing the weight of Stock B and increasing the weight of Stock A 
C)  replacing Stock A with a security that has a beta of .76 
D)  increasing the weight of Stock A and decreasing the weight of the risk-free security 
E)  replacing Stock B with Stock C, which has a beta equal to that of the market 
A)  increasing the amount invested in the risk-free security 
B)  decreasing the weight of Stock B and increasing the weight of Stock A 
C)  replacing Stock A with a security that has a beta of .76 
D)  increasing the weight of Stock A and decreasing the weight of the risk-free security 
E)  replacing Stock B with Stock C, which has a beta equal to that of the market

Question 3

You own three stocks which have betas of 1.16, 1.34, and 1.02. You would like to add a fourth security such that your portfolio beta will match that of the market. Given this situation, the new security:

Accepted Answer

A)  must have a beta of 1.0. 
B)  must have a beta of zero. 
C)  could be a U.S. Treasury bill. 
D)  could have any beta greater than 1.0. 
E)  must have a portfolio weight of 50 percent or more. 
A)  must have a beta of 1.0. 
B)  must have a beta of zero. 
C)  could be a U.S. Treasury bill. 
D)  could have any beta greater than 1.0. 
E)  must have a portfolio weight of 50 percent or more.

Question 4

Western Exports stock has a standard deviation of 15.6 percent and a covariance with the market of .0124. The market has a standard deviation of 13.7 percent. What is the correlation of this stock with the market?

Accepted Answer

A)  .58 
B)  .61 
C)  .68 
D)  .72 
E)  .77 
A)  .58 
B)  .61 
C)  .68 
D)  .72 
E)  .77

Which of the following correctly identifies the factors included in the Fama-French three-factor model?

You own a portfolio which is invested equally in two stocks and a risk-free security. The stock betas are .89 for Stock A and 1.26 for Stock B. Which one of the following will increase the portfolio beta, all else constant?

You own three stocks which have betas of 1.16, 1.34, and 1.02. You would like to add a fourth security such that your portfolio beta will match that of the market. Given this situation, the new security:

Western Exports stock has a standard deviation of 15.6 percent and a covariance with the market of .0124. The market has a standard deviation of 13.7 percent. What is the correlation of this stock with the market?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate Bonds

Government Bonds

Mortgage-Backed Securities

Filters

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

Which of the following correctly identifies the factors included in the Fama-French three-factor model?

You own a portfolio which is invested equally in two stocks and a risk-free security. The stock betas are .89 for Stock A and 1.26 for Stock B. Which one of the following will increase the portfolio beta, all else constant?

You own three stocks which have betas of 1.16, 1.34, and 1.02. You would like to add a fourth security such that your portfolio beta will match that of the market. Given this situation, the new security:

Western Exports stock has a standard deviation of 15.6 percent and a covariance with the market of .0124. The market has a standard deviation of 13.7 percent. What is the correlation of this stock with the market?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate Bonds

Government Bonds

Mortgage-Backed Securities

Filters