Exam 9: The Capital Asset Pricing Model Capm

The expected return on the market portfolio is 13 percent with a standard deviation of 16 percent.What are the expected return and standard deviation for a portfolio with 40 percent of the investment in the market portfolio borrowed at the risk-free rate of 5 percent?

_____________ is a measure of the risk of a security that cannot be avoided through diversification.

Suppose the returns on Security A are linearly related to four risk factors: F1,F2,F3,and F4.The required rate of return on Security A can be determined as follows: .The risk-free rate is 4.5 percent.What is the required rate of return of Security A,where b1,b2,b3,and b4 are 0.4,0.8,0.6,and 0.7,respectively,and F1,F2,F3,and F4 are 5 percent,6 percent,10 percent,and 8 percent,respectively?

What is the expected return for a portfolio that has $2,500 invested in a risk-free asset with a 5 percent rate of return,and $7,500 invested in a risky asset with a 17 percent rate of return and a 28 percent standard deviation?

The beta of a portfolio can be calculated as:

Assuming the CAPM is valid,_____________ securities lie _____________the security market line.

Use the following three statements to answer this question:

Stock A has a standard deviation of 20 percent and a correlation coefficient of 0.64 with market returns.The expected return of the market is 12 percent with a standard deviation of 15 percent.The risk-free rate is 5 percent.What is the beta of Stock A?

Which of the following investments would a risk-averse investor prefer if the risk-free rate is zero?

The expected return of Security A is 12 percent with a standard deviation of 15 percent.The expected return of Security B is 9 percent with a standard deviation of 10 percent.Securities A and B have a correlation of 0.4.The market return is 11 percent with a standard deviation of 13 percent and the risk-free rate is 4 percent.What is the Sharpe ratio of a portfolio if 35 percent of the portfolio is in Security A and the remainder in Security B?

In the above question,F₁ F_2, and F₃ were reasonably accurate estimates based on previous analysis and F₄ was not.Empirical data showed that the return on security A was actually 24.50%.What is a reasonable estimate for F4? (Assume reasonable values for n₁,n₂,n₃,and n₄)

The expected return of Security A is 12 percent with a standard deviation of 15 percent.The expected return of Security B is 9 percent with a standard deviation of 10 percent.Securities A and B have a correlation of 0.4.The market return is 11 percent with a standard deviation of 13 percent and the risk-free rate is 4 percent.Which one of the following is not an efficient portfolio,as determined by the lowest Sharpe ratio?

What is the role of the risk-free asset in the efficient portfolio?

Which of the following is a FALSE statement about the Sharpe ratio?

Use the following three statements to answer this question:

The risk-free rate is 5.25 percent.The expected return on the market is 12 percent with a standard deviation of 18 percent.What is the standard deviation of an efficient portfolio with a 16 percent expected return?

What is the beta of a portfolio if 40 percent of the funds invested in the market portfolio are borrowed at the risk-free rate?

What is the expected return on an efficient portfolio with a standard deviation of 15 percent? Assume the risk-free rate is 6 percent and the expected return on the market portfolio is 14.8 percent with a standard deviation of 20 percent.

The expected return on the market is 15 percent with a standard deviation of 12.5 percent and the risk-free rate is 5 percent.Which of the following portfolios are correctly priced?

The market expected return is 14 percent with a standard deviation of 18 percent.The risk-free rate is 6 percent.Security XYZ has just paid a dividend of $1 and has a current price of $13.95.What is the beta of Security XYZ if its dividend is expected to grow at 6 percent per year indefinitely?