Exam 9: The Capital Asset Pricing Model Capm

Stock Y has a beta of 0.8 and a required rate of return of 10 percent.What is the market risk premium if the risk-free rate is 5 percent?

Which one of the following is NOT true?

How do you explain a stock that earns a return higher than the required rate of return from the CAPM?

Given the following information,which investment(s)would risk-averse investors prefer if the risk-free rate is 5 percent?

What is the standard deviation of an efficient portfolio with an 8 percent expected return? Assume the risk-free rate is 3.75 percent and the expected return on the market portfolio is 10 percent with a standard deviation of 20 percent.

The CML relates:

Under the CAPM,an investor should be compensated for bearing:

A portfolio consists of two securities: a risk-free asset and an equity security.The expected return on the risk-free asset is 4.75 percent.The expected return of the equity security is 17 percent with a standard deviation of 23 percent.What is the portfolio expected return if the standard deviation for the portfolio is 18 percent?

The current price of Stock Y is $12.It is expected that the stock will pay an annual dividend of $0.60 and sell for $13.50 in one year.The risk-free rate is 6 percent.The expected return on the market portfolio is 14 percent with a standard deviation of 17 percent.Assume the market is in equilibrium.What is the beta of Stock Y?

Given the following information: a) What are the average monthly returns on Stock X and the S&P TSX? b) What are the standard deviations of the monthly returns on Stock X and the S&P TSX? c) What is the covariance of the returns on Stock X and the S&P TSX? d) What is the beta of Stock X? e) What is the implied risk-free rate?

The market expected return is 14 percent with a standard deviation of 12 percent.The risk-free rate is 5.5 percent.Security A has just paid a dividend of $1.50,which is expected to grow at a rate of 10 percent per year indefinitely.What is the current price of Security A if it has a beta of 1.4?

Greg has $10,000 to invest in a risk-free asset and the market portfolio.The risk-free rate is 4.8 percent.The market portfolio has an expected return of 13.6 percent with a standard deviation of 15 percent.What are the expected return and standard deviation for a portfolio with 30 percent of the funds invested in the risk-free asset?

What does the capital market line represent?

Which of the following describes how the portfolio changes relative to changes in the overall market?

Assume that the CAPM holds.If a security has a beta of 1,its expected return is:

Theoretically,what is meant by the market portfolio?

Which of the following is NOT an implication resulting from the assumption that capital markets are in equilibrium?

Stock Z has a standard deviation of 18 percent and a covariance with the market of 0.0625.The expected return of the market is 13 percent with a standard deviation of 20 percent.The risk-free rate is 5 percent.What is the required return of Stock Z?

What are the expected return and standard deviation for a portfolio that has $2,000 invested in a risk-free asset with 5.25 percent rate of return,and $8,000 invested in a risky asset with a 21 percent rate of return and a 35 percent standard deviation?

The expected return on the market is 12 percent with a standard deviation of 15 percent and the risk-free rate is 4.5 percent.Which of the following portfolios are overvalued?