Exam 11: Risk and Return: the Capital Asset Pricing Model

You have plotted the data for two securities over time on the same graph,ie.,the month return of each security for the last 5 years.If the pattern of the movements of the two securities rose and fell as the other did,these two securities would have:

A stock with a beta of zero would be expected to:

The correlation between the returns of IS and DS is:

The combination of the efficient set of portfolios with a riskless lending and borrowing rate results in:

The dominant portfolio with the lowest possible risk measures is:

Draw and explain the relationship between the opportunity set for a two asset portfolio when the correlation is: [Choose from -1,-.5,0,+.5,and +1]

A portfolio has 25% of its funds invested in Security C and 75% of its funds invested in Security C has an expected return of 8% and a standard deviation of 6%. Security B has an expected return of 10% and a standard deviation of 10%. The securities have a coefficient of correlation of .6. Which of the following values is closest to portfolio return and variance?

Diversification can effectively reduce risk.Once a portfolio is diversified the type of risk remaining is:

An efficient set of portfolios is:

The rate of return on the common stock of Flowers by Flo is expected to be 14% in a boom economy,8% in a normal economy,and only 2% in a recessionary economy.The probabilities of these economic states are 20% for a boom,70% for a normal economy,and 10% for a recession.What is the variance of the returns on the common stock of Flowers by Flo?

The variances of IS and DS are:

You've owned a share of stock for 6 years.It returned 5% in 3 of those years and -5% in the other 3.What was the variance?

Total risk can be divided into:

The elements along the diagonal of the Variance Covariance matrix are:

When a security is added to a portfolio the appropriate return and risk contributions are:

When stocks with the same expected return are combined into a portfolio:

A portfolio is made up of 75% of stock 1,and 25% of stock 2.Stock 1 has a variance of .08,and stock 2 has a variance of .035.The covariance between the stocks is -.001.Calculate both the variance and the standard deviation of the portfolio.

Suppose the JumpStart Corporation's common stock has a beta of 0.8.If the risk-free rate is 4% and the expected market return is 9%,the expected return for JumpStart's common is:

A portfolio contains four assets.Asset 1 has a beta of .8 and comprises 30% of the portfolio.Asset 2 has a beta of 1.1 and comprises 30% of the portfolio.Asset 3 has a beta of 1.5 and comprises 20% of the portfolio.Asset 4 has a beta of 1.6 and comprises the remaining 20% of the portfolio.If the riskless rate is expected to be 3% and the market risk premium is 6%,what is the beta of the portfolio,the expected return on the portfolio and the market?

Beta measures: