Martin Ortner holds a $200,000 portfolio consisting of the following stocks: $\begin{array}{lccc} \text { Stock} & \text { Investment}& \text { Beta} \\ \mathrm{A} & \$ 50,000 &0.95\\ \mathrm{B} & 50,000 &0.80\\ \mathrm{C} & 50,000&1.00 \\ \mathrm{D} & 50,000&1.20 \\ \text { Total }& \$ 200,000 \end{array}$ What is the portfolio's beta?

A) 0.938 B) 0.988 C) 1.037 D) 1.089 E) 1.143 A) 0.938 B) 0.988 C) 1.037 D) 1.089 E) 1.143

Exam 2: Risk and Return-Part I

Stocks A and B are quite similar: Each has an expected return of 12%, a beta of 1.2, and a standard deviation of 25%. The returns on the two stocks have a correlation of 0.6. Portfolio P has 50% in Stock A and 50% in Stock B. Which of the following statements is CORRECTσ

(Multiple Choice)

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Question 101

Variance is a measure of the variability of returns, and since it involves squaring the deviation of each actual return from the expected return, it is always larger than its square root, its standard deviation.

(True/False)

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Question 102

Stock X has a beta of 0.6, while Stock Y has a beta of 1.4. Which of the following statements is CORRECTσ

(Multiple Choice)

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Question 103

"Risk aversion" implies that investors require higher expected returns on riskier than on less risky securities.

(True/False)

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Question 104

We would generally find that the beta of a single security is more stable over time than the beta of a diversified portfolio.

(True/False)

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Question 105

Barker Corp. has a beta of 1.10, the real risk-free rate is 2.00%, investors expect a 3.00% future inflation rate, and the market risk premium is 4.70%. What is Barker's required rate of return?

(Multiple Choice)

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Question 106

In portfolio analysis, we often use ex post (historical) returns and standard deviations, despite the fact that we are really interested in ex ante (future) data.

(True/False)

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Question 107

Bloome Co.'s stock has a 25% chance of producing a 30% return, a 50% chance of producing a 12% return, and a 25% chance of producing a -18% return. What is the firm's expected rate of return?

(Multiple Choice)

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Question 108

Which of the following statements is CORRECTσ

(Multiple Choice)

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Question 109

Stocks A and B each have an expected return of 15%, a standard deviation of 20%, and a beta of 1.2. The returns on the two stocks have a correlation coefficient of +0.6. Your portfolio consists of 50% A and 50% B. Which of the following statements is CORRECTσ

(Multiple Choice)

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Question 110

Suppose that during the coming year, the risk free rate, rRF, is expected to remain the same, while the market risk premium (rM - rRF), is expected to fall. Given this forecast, which of the following statements is CORRECT?

(Multiple Choice)

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Question 111

A stock with a beta equal to -1.0 has zero systematic (or market) risk.

(True/False)

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Question 112

Stock A's beta is 1.7 and Stock B's beta is 0.7. Which of the following statements must be true, assuming the CAPM is correct.

(Multiple Choice)

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Question 113

One key conclusion of the Capital Asset Pricing Model is that the value of an asset should be measured by considering both the risk and the expected return of the asset, assuming that the asset is held in a well-diversified portfolio. The risk of the asset held in isolation is not relevant under the CAPM.

(True/False)

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Question 114

Martin Ortner holds a $200,000 portfolio consisting of the following stocks: Stock Investment Beta \ 50,000 0.95 50,000 0.80 50,000 1.00 50,000 1.20 Total \ 200,000 What is the portfolio's beta?

(Multiple Choice)

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Question 115

The CAPM is a multi-period model that takes account of differences in securities' maturities, and it can be used to determine the required rate of return for any given level of systematic risk.

(True/False)

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Question 116

Suppose Stan holds a portfolio consisting of a $10,000 investment in each of 8 different common stocks. The portfolio's beta is 1.25. Now suppose Stan decided to sell one of his stocks that has a beta of 1.00 and to use the proceeds to buy a replacement stock with a beta of 1.35. What would the portfolio's new beta be?

(Multiple Choice)

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Question 117

Gardner Electric has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, and the T-bond rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual future return on the market to be 12.50%. Using the SML, what is the firm's required rate of return?

(Multiple Choice)

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Question 118

If the price of money (e.g., interest rates and equity capital costs) increases due to an increase in anticipated inflation, the risk-free rate will also increase. If there is no change in investors' risk aversion, then the market risk premium (rM - rRF) will remain constant. Also, if there is no change in stocks' betas, then the required rate of return on each stock as measured by the CAPM will increase by the same amount as the increase in expected inflation.

(True/False)

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Question 119

The Y-axis intercept of the SML represents the required return of a portfolio with a beta of zero, which is the risk-free rate.

(True/False)

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Question 120

Showing 101 - 120 of 147

Exam 2: Risk and Return-Part I

Stocks A and B are quite similar: Each has an expected return of 12%, a beta of 1.2, and a standard deviation of 25%. The returns on the two stocks have a correlation of 0.6. Portfolio P has 50% in Stock A and 50% in Stock B. Which of the following statements is CORRECTσ

Variance is a measure of the variability of returns, and since it involves squaring the deviation of each actual return from the expected return, it is always larger than its square root, its standard deviation.

Stock X has a beta of 0.6, while Stock Y has a beta of 1.4. Which of the following statements is CORRECTσ

"Risk aversion" implies that investors require higher expected returns on riskier than on less risky securities.

We would generally find that the beta of a single security is more stable over time than the beta of a diversified portfolio.

Barker Corp. has a beta of 1.10, the real risk-free rate is 2.00%, investors expect a 3.00% future inflation rate, and the market risk premium is 4.70%. What is Barker's required rate of return?

In portfolio analysis, we often use ex post (historical) returns and standard deviations, despite the fact that we are really interested in ex ante (future) data.

Bloome Co.'s stock has a 25% chance of producing a 30% return, a 50% chance of producing a 12% return, and a 25% chance of producing a -18% return. What is the firm's expected rate of return?

Which of the following statements is CORRECTσ

Stocks A and B each have an expected return of 15%, a standard deviation of 20%, and a beta of 1.2. The returns on the two stocks have a correlation coefficient of +0.6. Your portfolio consists of 50% A and 50% B. Which of the following statements is CORRECTσ

Suppose that during the coming year, the risk free rate, rRF, is expected to remain the same, while the market risk premium (rM - rRF), is expected to fall. Given this forecast, which of the following statements is CORRECT?

A stock with a beta equal to -1.0 has zero systematic (or market) risk.

Stock A's beta is 1.7 and Stock B's beta is 0.7. Which of the following statements must be true, assuming the CAPM is correct.

Martin Ortner holds a $200,000 portfolio consisting of the following stocks: Stock Investment Beta \ 50,000 0.95 50,000 0.80 50,000 1.00 50,000 1.20 Total \ 200,000 What is the portfolio's beta?

The CAPM is a multi-period model that takes account of differences in securities' maturities, and it can be used to determine the required rate of return for any given level of systematic risk.

The Y-axis intercept of the SML represents the required return of a portfolio with a beta of zero, which is the risk-free rate.

An Overview of Financial Management and the Financial Environment

Risk and Return-Part II

Bond Valuation

Financial Options

Accounting for Financial Management

Analysis of Financial Statements

Basic Stock Valuation

Corporate Valuation and Financial Planning

Corporate Governance

Determining the Cost of Capital

Capital Budgeting: Decision Criteria

Capital Budgeting-Estimating Cash Flows and Analyzing Risk

Real Options

Distributions to Shareholders-Dividends and Repurchases

Capital Structure Decisions

Dynamic Capital Structures and Corporate Valuation

Initial Public Offerings-Investment Banking: and Financial Restructuring

Lease Financing

Hybrid Financing Preferred Stock-Warrants and Convertibles

Supply Chains and Working Capital Management

Providing and Obtaining Credit

Other Topics in Working Capital Management

Enterprise Risk Management

Bankruptcy-Reorganization and Liquidation

Mergers and Corporate Control

Multinational Financial Management

Time Value of Money

Basic Financial Tools: A review

Pension Plan Management

Financial Management in Not for Profit Businesses

Filters