Exam 6: The Meaning and Measurement of Risk and Return

Stock A has a beta of 1.2 and a standard deviation of returns of 14%.Stock B has a beta of 1.8 and a standard deviation of returns of 18%.If the risk-free rate of return increases and the market risk premium remains constant,then

You purchased 1,000 shares of K.C Inc.common stock one year ago for $50 per share.You received a dividend of $2 per share today and decide to take your profits by selling at $54.50 per share.What is your holding period return?

The Beta of a T-bill is zero.

Stanley 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?

The portfolio beta is simply the sum of the betas of the individual stocks in the portfolio.

A well-diversified portfolio includes investments in 50 securities.The portfolio's systematic risk is likely to be about

Collectibles Corp.has a beta of 2.5 and a standard deviation of returns of 20%.The return on the market portfolio is 15% and the risk free rate is 4%.What is the risk premium on the market?

How can investors reduce the risk associated with an investment portfolio without having to accept a lower expected return?

You must add one of two investments to an already well- diversified portfolio. If you are a risk-averse investor,which one is the better choice?

The relevant variable a financial manager uses to measure returns is:

White Company stock has a beta of 2 and a required return of 23%,while Black Company stock has a beta of 1.0 and a required return of 14%.The standard deviation of returns for White Company is 10% more than the standard deviation for Black Company.The expected return on the market portfolio according to the CAPM is

According to the CAPM,for each unit of Beta an asset's required rate of return increases by the market's return.

Which of the following types of risk is diversifiable?

Negative historical returns are not possible during periods of high volatility (high standard deviations of returns)due to the risk-return tradeoff.

A stock with a beta of 1 has systematic or market risk equal to the "typical" stock in the marketplace.

Another name for an asset's expected rate of return is holding-period return.

Emery Inc.has a beta equal to 1.8 and a required return of 15% based on the CAPM.If the risk free rate of return is 4.2%,the expected return on the market portfolio is

You are considering buying some stock in Continental Grain.Which of the following are examples of non-diversifiable risks? I.Risk resulting from a general decline in the stock market. II.Risk resulting from a possible increase in income taxes. III.Risk resulting from an explosion in a grain elevator owned by Continental. IV.Risk resulting from a pending lawsuit against Continental.

Changes in the general economy,like changes in interest rates or tax laws represent what type of risk?

Beginning with an investment in one company's securities,as we add securities of other companies to our portfolio,which type of risk declines?