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

Which one of the following would tend to indicate that a portfolio is being effectively diversified?

A portfolio consists of 40 percent of Stock S and 60 percent of Stock T.Stock S will return 13 percent if the economy booms and 8 percent if it is normal.Stock T will return 6 percent in a boom and 10 percent in a normal economy.The probability of a boom is 50 percent.What is the portfolio variance?

Alpha stock has a beta of 1.43.The risk-free rate of return is 3.5 percent and the market rate of return is 11 percent.What is the amount of the risk premium on Alpha stock?

There is a 5 percent probability the economy will boom,an 85 percent probability it will be normal,and a 10 percent probability it will be recessionary.For these economic states,Stock A has deviations from its expected returns of .06,.01,and -.08,respectively.Stock B has deviations from its expected returns of .06,.00,and -.05,for the three economic states,respectively.What is the covariance of the two stocks?

Which one of these measures the interrelationship between two securities?

Which one of the following stocks,if any,is correctly priced according to CAPM if the risk-free rate of return is 6.5 percent and the market rate of return is 10.5 percent? Stock A with a beta of .85 and an expected return of 9.22 percent;Stock B with a beta of 1.08 and an expected return of 11.90 percent;Stock C with a beta of 1.69 and an expected return of 15.38 percent;Stock D with a beta of 1.45 and an expected return of 12.30 percent.

A portfolio is comprised of five securities that have individual betas of 1.38,.87,1.02,1.49,and .67.You do not know the portfolio weight of each security.What do you know with certainty?

Standard deviation measures _____ risk.

A portfolio is invested 60 percent in one stock and 40 percent in one bond.The bond has an expected return of 7.25 percent.What is the expected rate of return on the stock if the portfolio expected return is 10.40 percent?

The expected return on HiLo stock is 12.04 percent while the expected return on the market is 10.52 percent.The beta of HiLo is 1.28.What is the risk-free rate of return?

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

You would like to combine a risky stock with a beta of 1.6 with U.S.Treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market.What percentage of the portfolio should be invested in the risky asset?

The dominant portfolio with the lowest possible level of risk out of a set of portfolios comprised of two securities is referred to as the:

The expected return on a portfolio:

If a stock portfolio is well diversified,then the portfolio variance:

Systematic risk is measured by:

The risk-free rate of return is 3.3 percent and the market risk premium is 7.5 percent.What is the expected rate of return on a stock with a beta of 1.62?

A portfolio consists of $12,000 of stock K and $23,000 of stock L.Stock K will return 14 percent in a booming economy and 5 percent in a normal economy.Stock L will return 10 percent in a booming economy and 6 percent in a normal economy.The probability of the economy booming is 22 percent.What is the expected rate of return on the portfolio if the economy is normal?

BBG stock has a beta of .86 and an expected return of 9.51 percent.The risk-free rate of return is 3.26 percent and the market rate of return is 11.14 percent.Which one of the following statements is true given this information?

Amy has a portfolio with a beta of 1.26.She has decided to lower her investment risk.Adding which one of the following securities to her portfolio is most assuredly going to lower the risk of the portfolio?