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

The expected return on a portfolio is best described as ________ average of the expected returns on the individual securities held in the portfolio.

Stock M has a beta of 1.2.The market risk premium is 7.8 percent and the risk-free rate is 3.6 percent.Assume you compile a portfolio equally invested in Stock M,Stock N,and a risk-free security; the portfolio has a beta equal to the overall market.What is the expected return on the portfolio?

Correlation is expressed as the symbol:

The risk premium for an individual security is computed by:

A dominant portfolio within an opportunity set that has the lowest possible level of risk is referred to as the:

The probability of the economy booming is 10 percent,while it is 60 percent for being normal,and 30 percent for being recessionary.A stock is expected to return 16 percent in a boom,11 percent in a normal economy,and lose 8 percent in a recession.What is the standard deviation of the returns?

Stock A is expected to return 12 percent in a normal economy and lose 7 percent in a recession.Stock B is expected to return 8 percent in a normal economy and 2 percent in a recession.The probability of the economy being normal is 80 percent and the probability of a recession is 20 percent.What is the covariance of these two securities?

Stock K is expected to return 12.4 percent while the return on Stock L is expected to be 8.6 percent.You have $10,000 to invest in these two stocks.How much should you invest in Stock L if you desire a combined return from the two stocks of 11 percent?

Risk that affects a large number of assets,each to a greater or lesser degree,is called ________ risk.

The expected return on a stock that is computed using economic probabilities is:

According to the CAPM,the expected return on a security is:

The risk-free rate of return is 3.68 percent and the market risk premium is 7.84 percent.What is the expected rate of return on a stock with a beta of 1.32?

Which one of the following is an example of unsystematic risk?

The variance of Stock A is .0036,the variance of the market is .0059,and the covariance between the two is .0026.What is the correlation coefficient?

Which one of these best describes steps of the separation principle?

Unsystematic risk:

The systematic risk of the market is measured by a:

Assume you are looking at an opportunity set representing many securities.Where would the minimum variance portfolio be located in relation to this set?

The probability the economy will boom is 10 percent while the probability of a recession is 20 percent.Stock A is expected to return 15 percent in a boom,9 percent in a normal economy,and lose 14 percent in a recession.Stock B should return 10 percent in a boom,6 percent in a normal economy,and 2 percent in a recession.Stock C is expected to return 5 percent in a boom,7 percent in a normal economy,and 8 percent in a recession.What is the standard deviation of a portfolio invested 20 percent in Stock A,30 percent in Stock B,and 50 percent in Stock C?

The beta of a security is calculated by dividing the: