Exam 11: Return, risk, and the Capital Asset Pricing Model Capm

Stock A has a beta of 1.2,Stock B's beta is 1.46,and Stock C's beta is .72.If you invest $2,000 in Stock A,$3,000 in Stock B,and $5,000 in Stock C,what will be the beta of your portfolio?

You want to compile a portfolio valued at $1,000 which will be invested in Stocks A and B plus a risk-free asset.Stock A has a beta of 1.2 and Stock B has a beta of .7.If you invest $300 in Stock A and want a portfolio beta of .9,how much should you invest in Stock B?

BPJ stock is expected to earn 14.8 percent in a recession,6.3 percent in a normal economy,and lose 4.7 percent in a booming economy.The probability of a boom is 20 percent while the probability of a normal economy is 55 percent.What is the expected rate of return on this stock?

Which one of the following is the best example of systematic risk?

The amount of systematic risk present in a particular risky asset,relative to the systematic risk present in an average risky asset,is called the particular asset's:

You have a portfolio comprised of two risky securities.This combination produces no diversification benefit.The lack of diversification benefits indicates the returns on the two securities:

You are comparing five separate portfolios comprised of two stocks each that have varying characteristics.Which characteristic is most indicative of a diversified portfolio?

Stock A has a beta of .68 and an expected return of 8.1 percent.Stock B has a beta of 1.42 and an expected return of 13.9 percent.Stock C has beta of 1.23 and an expected return of 12.4 percent.Stock D has a beta of 1.31 and an expected return of 12.6 percent.Stock E has a beta of .94 and an expected return of 9.8 percent.Which one of these stocks is the most accurately priced if the risk-free rate of return is 2.5 percent and the market risk premium is 8 percent?

The characteristic line graphically depicts the relationship between the:

You would like to combine a risky stock with a beta of 1.87 with U.S.Treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market.What percentage of the portfolio should be invested in the risky stock?

The market risk premium is computed by:

A portfolio has 38 percent of its funds invested in Security C and 62 percent invested in Security D.Security C has an expected return of 8.47 percent and a standard deviation of 7.12 percent.Security D has an expected return of 13.45 percent and a standard deviation of 16.22 percent.The securities have a coefficient of correlation of .89.What are the portfolio rate of return and variance values?

Which one of these is a measure of the interrelationship between two securities?

Stock A has a variance of .1428 while Stock B's variance is .0910.The covariance of the returns for these two stocks is −.0206.What is the correlation coefficient?

Stock A has an expected return of 17.8 percent,and Stock B has an expected return of 9.6 percent.However,the risk of Stock A as measured by its variance is 3 times that of Stock B.If the two stocks are combined equally in a portfolio,what would be the portfolio's expected return?

The separation principle states that an investor will:

A stock with a beta of zero would be expected to have a rate of return equal to:

The common stock of CTI has an expected return of 14.48 percent.The return on the market is 11.6 percent and the risk-free rate of return is 3.42 percent.What is the beta of this stock?

The excess return earned by an asset that has a beta of 1.0 over that earned by a risk-free asset is referred to as the:

We routinely assume that investors are risk-averse return-seekers; i.e.,they like returns and dislike risk.If so,why do we contend that only systematic risk and not total risk is important?