Exam 5: Modern Portfolio Concepts

The Franko Company has a beta of 1.90.By what percent will the required rate of return on the stock of Franko Company increase if the expected market rate of return rises by 3%?

A stock with a beta of 1.3 is less risky than a stock with a beta of 0.42.

Beta measures diversifiable risk while standard deviation measures systematic risk.

What is the expected return on a stock with a beta of 1.09, a market risk premium of 8%, and a risk-free rate of 4%?

In designing a portfolio, relevant risk is

Beta can be defined as the slope of the line that explains the relationship between

The returns on the stock of DEF and GHI companies over a 4 year period are shown below: From this limited data you should conclude that returns on

Modern portfolio theory does not consider diversifiable risk relevant because

The CAPM estimates the required rate of return on a stock held as part of a well diversified portfolio.

Modern portfolio theory seeks to minimize risk and maximize return by combining highly correlated assets.

OKAY stock has a beta of 0.8.The market as a whole is expected to decline by 12% thereby causing OKAY stock to

You have gathered the following information concerning a particular investment and conditions in the market. According to the Capital Asset Pricing Model, the required return for this investment is

An investment portfolio should be built around the needs of the individual investor.

Which of the following best describes the relationship between a stock's beta and the standard deviation of the stock's returns?

Standard deviation is a measure that indicates how the price of an individual security responds to market forces.

For stocks with positive betas, higher risk stocks will have higher beta values.

Which one of the following types of risk cannot be effectively eliminated through portfolio diversification?

Maximum international diversification can be achieved by investing solely in U.S.multinational corporations.

The beta of the market is

Both the efficient frontier and beta are important aspects of MPT.