Exam 6: The Meaning and Measurement of Risk and Return

Answer the questions below using the following information on stocks A,B,and C. Assume the risk-free rate of return is 3% and the expected market return is 12% a.Calculate the required return for stocks A,B,and C. b.Assuming an investor with a well-diversified portfolio,which stock would the investor want to add to his portfolio? c.Assuming an investor who will invest all of his money into one security,which stock will the investor choose?

Company unique risk can be virtually eliminated with a portfolio consisting of approximately 20 securities.

You hold a portfolio with the following securities: What is the expected return for the market,according to the CAPM?

Decker Corp.common stock has a required return of 17.5% and a beta of 1.75.If the expected risk free return is 3%,what is the expected return for the market based on the CAPM?

Assume that an investment is forecasted to produce the following returns: a 30% probability of a 12% return; a 50% probability of a 16% return; and a 20% probability of a 19% return.What is the expected percentage return this investment will produce?

You are considering investing in Ford Motor Company.Which of the following are examples of diversifiable risk? I.Risk resulting from possibility of a stock market crash. II.Risk resulting from uncertainty regarding a possible strike against Ford. III.Risk resulting from an expensive recall of a Ford product. IV.Risk resulting from interest rates decreasing.

A well-diversified portfolio typically has systematic risk equal to about 40% of the portfolio's total risk.