Deck 11: Return and Risk: The Capital Asset Pricing Model Capm

Question 1

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

A)must be equal to or greater than the variance of the least risky stock in the portfolio.
B)will be a weighted average of the variances of the individual securities in the portfolio.
C)will equal the variance of the most volatile stock in the portfolio.
D)will be an arithmetic average of the variances of the individual securities in the portfolio.
E)may be less than the variance of the least risky stock in the portfolio.

Answer 1

may be less than the variance of the least risky stock in the portfolio.

Question 2

Assume two securities are negatively correlated.If these two securities are combined into an equally weighted portfolio,the portfolio standard deviation must be

A)equal to the standard deviation of the overall market.
B)equal to the arithmetic average of the standard deviations of the individual securities.
C)equal to zero.
D)less than the weighted average of the standard deviations of the individual securities.
E)equal to or greater than the lowest standard deviation of the two securities.

Answer 2

less than the weighted average of the standard deviations of the individual securities.

Question 3

Angelo anticipates earning a rate of return of 11.4 percent on his portfolio next year.The 11.4 percent is referred to as the

A)expected return.
B)future return.
C)holding period return.
D)actual return.
E)average return.

Answer 3

expected return.

Question 4

Which statement correctly applies to the feasible set of returns for a portfolio consisting of domestic stocks,A and B? Assume that the expected returns are plotted against standard deviations.

A)Any combination of Stock A and Stock B that plot to the right of the minimum variance portfolio is an efficient portfolio.
B)Given any specific level of risk,the maximum obtainable rate of return will plot on the efficient frontier.
C)The minimum variance portfolio will move to the right on the risk-return graph if foreign securities are added to the portfolio.
D)To obtain the highest possible return,the portfolio return and standard deviation should plot above the feasible set.
E)The higher the correlation between Stocks A and B,the greater the bend in the curve of the feasible set.

Question 5

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

A)efficient frontier.
B)minimum variance portfolio.
C)upper tail of the efficient set.
D)tangency portfolio.
E)risk-free portfolio.

Question 6

The expected return on a portfolio

A)can be greater than the expected return on the best performing security in the portfolio.
B)can be less than the expected return on the worst performing security in the portfolio.
C)is independent of the performance of the overall economy.
D)is limited by the returns on the individual securities within the portfolio.
E)is an arithmetic average of the returns of the individual securities when the weights of those securities are unequal.

Question 7

Which one of these measures the squared deviations of actual returns from expected returns?

A)Variance
B)Covariance
C)Beta
D)Correlation
E)Alpha

Question 8

When computing the expected return on a portfolio of stocks the portfolio weights are based on the

A)number of shares owned in each stock.
B)price per share of each stock.
C)market value of the total shares held in each stock.
D)original amount invested in each stock.
E)cost per share of each stock held.

Question 9

The standard deviation of a portfolio will tend to increase when

A)the portfolio concentration in a single cyclical industry increases.
B)one of two stocks related to the airline industry is replaced with a third stock that is unrelated to any other stock in the portfolio.
C)a risky asset in the portfolio is replaced with U.S.Treasury bills.
D)the weights of the various diverse securities become more evenly distributed.
E)short-term bonds are replaced with Treasury Bills.

Question 10

The correlation between stocks A and B is equal to the

A)standard deviation of A divided by the standard deviation of B.
B)covariance_AB divided by the product of the standard deviations of A and B.
C)standard deviation of B divided by the covariance_AB.
D)sum of the variances of A and B divided by the covariance_AB.
E)product of the standard deviation of A multiplied by the standard deviation of B divided by covariance_AB.

Question 11

Which one of these statements is correct regarding a portfolio of two risky securities?

A)Both the rate of return and the standard deviation of a portfolio can be changed by changing the portfolio weights.
B)The opportunity set is represented by a forward bending curve when expected returns are graphed against standard deviation.
C)Diversification occurs when the correlation between two securities is +1.
D)The standard deviation of a portfolio cannot be lower than the weighted average standard deviation of the securities held within the portfolio.
E)The minimum variance portfolio of two stocks also represents the portfolio's highest possible rate of return.

Question 12

The market risk of a portfolio of two stocks will be reduced the most if the securities within that portfolio have a correlation of

A)−1
B)−0.5
C)0
D)0.5
E)1

Question 13

You plotted the monthly rate of return for two securities against time for the past 48 months.If the pattern of the movements of these two sets of returns rose and fell together the majority,but not all,of the time,then the securities have

A)no correlation at all.
B)a weak negative correlation.
C)a strong negative correlation.
D)a strong positive correlation.
E)a perfect positive correlation.

Question 14

Which one of the following statements is correct concerning the standard deviation of a portfolio?

A)Standard deviation is used to determine the amount of risk premium that should apply to a portfolio.
B)The greater the diversification of a portfolio,the greater the standard deviation of that portfolio.
C)Standard deviation measures only the systematic risk of a portfolio.
D)The standard deviation of a portfolio can often be lowered by changing the weights of the securities in the portfolio.
E)The standard deviation of a portfolio must equal the weighted average of the standard deviations of the individual securities held within the portfolio.

Question 15

Which one of these measures the interrelationship between two securities?

A)Standard deviation
B)Variance
C)Beta
D)Covariance
E)Alpha

Question 16

If there is no diversification benefit derived from combining two risky stocks into one portfolio,then the

A)returns on the two stocks must move perfectly in sync with one another.
B)returns on the two stocks must move perfectly opposite of one another.
C)stocks must have a zero correlation.
D)portfolio is equally weighted between the two stocks.
E)two stocks are completely unrelated to one another.

Question 17

The portfolio expected return considers which of the following factors?
I.The amount of money currently invested in each individual security
II.Various levels of economic activity
III.The performance of each stock given various economic scenarios
IV.The probability of various states of the economy occurring

A)I and III only
B)II and IV only
C)I,III,and IV only
D)II,III,and IV only
E)I,II,III,and IV only

Question 18

For an individual investor,the ideal portfolio could best be described as the portfolio that

A)has the lowest standard deviation given a specific expected rate of return.
B)lies above and to the left of the feasible set.
C)produces the highest rate of return.
D)qualifies as the minimum variance portfolio.
E)lies within the feasible set.

Question 19

The covariance of two securities is

A)equal to the variance of one security divided by the variance of the second security.
B)zero when the securities are positively related.
C)expressed as a squared value.
D)limited to a range of 0 to +1.
E)unaffected by any changes in the probabilities of various states of the economy occurring.

Question 20

A negative covariance between the returns of Stock A and Stock B indicates that

A)market prices of Stock A and Stock B move in tandem when their returns are declining.
B)the return on one stock will exceed that stock's average return when the second stock has a return that is less than its average.
C)a portfolio investing equally in Stocks A and B will have a negative expected rate of return.
D)both Stock A and Stock B have negative rates of return for the period.
E)one stock has a negative rate of return while the other stock has a positive rate of return for the period.

Question 21

The separation principle states that an investor will

A)choose any efficient portfolio and invest some amount in the riskless asset to generate the expected return.
B)never choose to invest in the riskless asset because the expected return on the riskless asset is lower over time.
C)invest only in the riskless asset and tangency portfolio,choosing the weights of each based on his/her individual risk tolerance.
D)randomly select any efficient portfolio.
E)select a portfolio based solely on his/her desired rate of return while ignoring the associated risks of their selection.

Question 22

The market price of ABC stock is most apt to be affected by which one of these events?

A)Twenty-five percent increase in interest rates,just as expected
B)The sudden passing of ABC's CEO
C)An increase in ABC's annual dividend by the same percentage as last year's increase
D)The completion of ABC's new distribution center,right on schedule
E)An increase in ABC's payroll costs,in line with current inflation

Question 23

The risk of an individual security that will be compensated by the market depends upon the

A)standard deviation of that security.
B)covariance of that security with the market.
C)expected rate of return on that security.
D)security's historical variance.
E)industry most associated with that security.

Question 24

Which one of the following is the best example of systematic risk?

A)The price of tomatoes declines sharply.
B)Inflation rises unexpectedly.
C)Commercial airline pilots go on strike.
D)A hurricane hits a tourist destination.
E)People become diet conscious and avoid fast food restaurants.

Question 25

Systematic risk is measured by

A)beta.
B)the arithmetic average.
C)the geometric average.
D)covariance.
E)standard deviation.

Question 26

Over time,the unexpected return on a company's stock is expected to equal

A)zero.
B)the risk-free rate.
C)the company's average rate of return.
D)the market risk premium.
E)the average return on the overall market.

Question 27

Well-diversified portfolios have negligible

A)systematic risks.
B)unsystematic risks.
C)expected returns.
D)variances.
E)market risks.

Question 28

The primary purpose of portfolio diversification is to

A)increase returns and risks.
B)eliminate all risks.
C)eliminate asset-specific risk.
D)lower both returns and risks.
E)eliminate systematic risk.

Question 29

The risk premium for an individual security is computed by

A)adding the risk-free rate to the security's expected return.
B)multiplying the security's beta by the market risk premium.
C)multiplying the security's beta by the risk-free rate of return.
D)dividing the market risk premium by the beta of the security.
E)dividing the market risk premium by the quantity (1 − Beta).

Question 30

What is the first step an investor takes when making an investment decision according to the separation principle?

A)Determine the mix of risky and risk-free assets he/she will hold
B)Quantify the amount of risk he/she is willing to accept
C)Estimate future inflation and risk-free rates
D)Determine the portfolio of risky assets that he/she will hold
E)Specify a desired rate of return

Question 31

The capital market line

A)assumes investors can borrow,but not lend,at the risk-free rate.
B)depicts the highest rate of return for every level of risk given only a single portfolio of risky assets.
C)intersects its graph at the origin and is linear in nature.
D)intersects the vertical axis at the risk-free rate.
E)intersects the risky portfolio at that portfolio's lowest risk point.

Question 32

A portfolio consists of five securities that have individual betas of 1.38,0.87,1.02,1.49,and 0.67.You do not know the portfolio weight of each security.What do you know with certainty?

A)The portfolio beta will not be affected by any change in the portfolio weights.
B)The portfolio beta will not change if an additional security with a beta of 1 is added to the portfolio.
C)The portfolio beta will be greater than the market beta.
D)The portfolio beta will be less than 1.49 and greater than 0.67.
E)The optimal portfolio beta for any investor must be greater than 0 and less than 1.

Question 33

Unsystematic risk

A)can be effectively eliminated through portfolio diversification.
B)is measured by beta.
C)is compensated for by the risk premium.
D)is nondiversifiable.
E)is related to the overall economy.

Question 34

Mr.Rhoades is the CEO of Daily News.The majority of stockholders do not approve of the decisions made by Mr.Rhoades and have repeatedly requested that he be ousted.Over the last couple of months,it has become apparent that the CEO is going to be replaced by a member of the board,Mr.Bentley,who is highly respected.This morning,the official announcement was made that Mr.Rhoades has stepped down and will be replaced immediately by Mr.Bentley.How is the stock price of the Daily News most apt to react to this announcement?

A)Highly positive and immediate reaction
B)A slow but positive reaction
C)An immediate negative reaction
D)Middling reaction over multiple days
E)No reaction

Question 35

The standard deviation of a risk-free asset is

A)0.
B)−1.
C)+1.
D)between 0 and −1.
E)between 0 and +1.

Question 36

Which one of the following is an example of systematic risk?

A)A poorly managed company suddenly goes out of business due to slow sales.
B)An efficient company reduces its work force and automates several jobs.
C)A key company employee suddenly resigns and accepts employment with a competitor.
D)A well respected chairman of the Federal Reserve suddenly resigns.
E)An unpopular president of a firm suddenly resigns.

Question 37

The beta of a security is calculated by dividing the

A)variance of the market by the covariance of the security with the market.
B)correlation of the security with the market by the variance of the security.
C)variance of the market by the correlation of the security with the market.
D)covariance of the security with the market by the variance of the market.
E)covariance of the security with the market by the variance of the security.

Question 38

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

A)capital market line that shows that investors will only invest in the riskless asset.
B)capital market line that shows that investors will invest in a combination of the riskless asset and the tangency portfolio.
C)security market line that shows that all investors will invest in the riskless asset only.
D)security market line that shows that all investors will invest in a combination of the riskless asset and the tangency portfolio.
E)capital market line that shows that investors will invest at the vertical intercept point of that line.

Question 39

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

A)A decrease in the portfolio standard deviation
B)An increase in the portfolio rate of return
C)An increase in the portfolio beta
D)An increase in the portfolio standard deviation
E)A constant portfolio beta

Question 40

The principle of diversification tells us that

A)concentrating a portfolio in three companies within the same industry will greatly reduce the overall risk of a portfolio.
B)concentrating a portfolio in two or three large stocks will eliminate all of a portfolio's risk.
C)spreading an investment across many diverse assets will eliminate all of a portfolio's risk.
D)spreading an investment across many diverse assets will lower a portfolio's level of risk.
E)spreading an investment across five diverse companies will not lower a portfolio's level of risk.

Question 41

KNF stock is quite cyclical.In a boom economy,the stock is expected to return 34 percent in comparison to 13 percent in a normal economy and a negative 22 percent in a recessionary period.The probability of a recession is 15 percent while the chance of a boom is 4 percent.What is the standard deviation of the returns this stock?

A)14.15%
B)13.68/%
C)13.49%
D)14.46%
E)15.04%

Question 42

According to the capital asset pricing model,the expected return on a security is

A)negatively and linearly related to the security's beta.
B)positively and linearly related to the security's beta.
C)positively and nonlinearly related to the security's beta.
D)positively and linearly related to the security's variance.
E)negatively and nonlinearly related to the security's beta.

Question 43

Assume the risk-free rate and the market risk premium are both positive.Trevor currently owns a portfolio consisting of risky and risk-free securities.The portfolio has an expected return of 11.2 percent,a standard deviation of 16.2 percent,and a beta of 1.21.He has decided that he would prefer a higher expected return.Which one of these actions should he take?

A)Replace a stock in his current portfolio with a beta of 1.34 with a stock that has a beta of 1.03
B)Sell a portion of the risky assets and use the proceeds to purchase risk-free securities
C)Lower both the portfolio standard deviation and beta
D)Increase the portfolio weight of the risky assets without affecting the total portfolio value
E)Increase the standard deviation of the portfolio without affecting the portfolio beta

Question 44

The Inferior Goods Co.stock is expected to earn 18 percent in a recession,10 percent in a normal economy,and lose 21 percent in a booming economy.The probability of a boom is 22 percent while the probability of a normal economy is 75 percent.What is the expected rate of return on this stock?

A)3.42%
B)3.15%
C)3.67%
D)10.83%
E)10.41%

Question 45

A security that is fairly priced will have a return that lies ________ the security market line.

A)below
B)on or below
C)on
D)on or above
E)above

Question 46

You recently purchased a stock that is expected to earn 12 percent in a booming economy,9 percent in a normal economy,and lose 15 percent in a recessionary economy.The probabilities of a boom,a normal economy,and a recession are 18,75,and 7 percent,respectively.What is your expected rate of return on this stock?

A)7.93%
B)7.45%
C)7.86%
D)7.75%
E)7.68%

Question 47

The excess return earned by an asset that has a beta of one over that earned by a risk-free asset is referred to as the

A)market rate of return.
B)systematic return.
C)real rate of return.
D)market risk premium.
E)total return.

Question 48

The variance of Stock A is 0.005492,the variance of Stock B is 0.012394,and the covariance between the two is 0.0034.What is the correlation coefficient?

A)0.4284
B)0.3542
C)0.4010
D)0.4121
E)0.3510

Question 49

The intercept point of the security market line is the rate of return that corresponds to

A)the market rate of return.
B)the beta of the market.
C)a value of one.
D)a value of zero.
E)the risk-free rate.

Question 50

RTF stock is expected to return 11 percent in a normal economy and lose 15 percent in a recession.The probability of a recession is 33 percent and the probability of a booming economy is zero.What is the variance of the returns on RTF stock?

A)0.019093
B)0.013760
C)0.017864
D)0.014946
E)0.019394

Question 51

Amy has a portfolio with a beta of 1.26 but 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?

A)A stock that has a covariance with the market of 0.89
B)A security that has a standard deviation of 11 percent
C)A security with a beta of 1.58
D)U.S.Treasury bills
E)A mix of small-company and large-company stocks

Question 52

The probabilities of an economic boom,normal economy,and a recession are 15 percent,83 percent,and 2 percent,respectively.For these economic states,Stock A has deviations from its expected returns of −0.03,0.01,and 0.02 for the three economic states respectively.Stock B has deviations from its expected returns of 0.15,0.06,and −0.09 for the three economic states,respectively.What is the covariance of the two stocks?

A)0.02049
B)0.02143
C)-0.00021
D)0.00116
E)-0.01054

Question 53

The variance of Stock A is 0.007242,the variance of Stock B is 0.020504,and the covariance between the two is 0.0019.What is the correlation coefficient?

A)0.1487
B)0.0929
C)0.0891
D)0.1559
E)0.1643

Question 54

A stock with a beta of zero would be expected to have a rate of return equal to

A)the prime rate.
B)the average AAA bond.
C)the market rate.
D)the risk-free rate.
E)zero.

Question 55

The systematic risk of the market is assigned a

A)beta of 1.
B)beta of 0.
C)standard deviation of 1.
D)standard deviation of 0.
E)variance of 1.

Question 56

The rate of return on the common stock of Flowers by Flo is expected to be 13 percent in a boom economy,11 percent in a normal economy,and only 6 percent in a recessionary economy.The probabilities of these economic states are 15 percent for a boom,80 percent for a normal economy,and 5 percent for a recession.What is the variance of the returns on this stock?

A)0.000185
B)0.001580
C)0.001963
D)0.000301
E)0.000471

Question 57

The market risk premium is computed by

A)adding the risk-free rate of return to the inflation rate.
B)adding the risk-free rate of return to the market rate of return.
C)subtracting the risk-free rate of return from the inflation rate.
D)subtracting the risk-free rate of return from the market rate of return.
E)multiplying the risk-free rate of return by a beta of one.

Question 58

A stock with an actual return that lies above the security market line has

A)less systematic risk than the overall market.
B)more risk than warranted based on the realized rate of return.
C)yielded a return equivalent to the level of risk assumed.
D)more systematic risk than the overall market.
E)yielded a higher return than expected for the level of risk assumed.

Question 59

The probabilities of an economic boom,normal economy,and a recession are 2 percent,93 percent,and 5 percent,respectively.For these economic states,Stock A has deviations from its expected returns of 0.04,0.07,and −0.11 for the three economic states respectively.Stock B has deviations from its expected returns of 0.14,0.08,and −0.22 for the three economic states,respectively.What is the covariance of the two stocks?

A)0.00653
B)-0.00743
C)-0.00589
D)0.00974
E)0.00802

Question 60

Assume you are looking at a security market line graph.Where would an overpriced stock with a beta of 0.98 plot on that graph?

A)To the right of the market and below the security market line
B)To the left of the market and below the security market line
C)To the right of the market and above the security market line
D)To the left of the market and above the security market line
E)To the right of the market on the security market line

Question 61

A portfolio consists of two stocks with Stock A having a weight of 41 percent.Stock A has a standard deviation of 16.78 percent,and Stock B's standard deviation is 8.44 percent.The stocks have a covariance of −0.0063.What is the portfolio variance?

A)0.001253
B)0.004165
C)0.004961
D)0.019097
E)0.034141

Question 62

A portfolio is invested 54 percent in Stock K and 46 percent in Bond L.The bond has an expected return of 6.85 percent.What is the expected rate of return on Stock K if the portfolio expected return is 10.25 percent?

A)13.45%
B)15.60%
C)13.15%
D)14.22%
E)10.68%

Question 63

A portfolio consists of 200 shares of Stock A,300 shares of Stock B,500 shares of Stock C,and 700 shares of Stock D.The prices of these stocks are $19,$36,$21,and $15 for Stocks A through D,respectively.What is the portfolio weight of Stock C?

A)31.08%
B)32.20%
C)29.49%
D)25.72%
E)36.89%

Question 64

A portfolio consists of 33 percent of Stock X,52 percent of Stock Y,and 15 percent of Stock Z.Stock X has a beta of 0.94,Stock Y has a beta of 1.21,and Stock Z has a beta of 1.08.What is the portfolio beta?

A)1.012
B)1.111
C)1.117
D)1.124
E)1.101

Question 65

Stock A is expected to return 14 percent in a normal economy and lose 21 percent in a recession.Stock B deals with inferior goods and has expected returns of 6 percent in a normal economy and 15 percent in a recession.The probability of a recession occurring is 25 percent with a zero probability of a boom.What is the standard deviation of a portfolio that is equally weighted between the two stocks?

A)5.63%
B)6.08%
C)4.29%
D)5.13%
E)6.36%

Question 66

A stock has an expected return of 13.74 percent.The return on the market is 12.68 percent,and the risk-free rate of return is 3.24 percent.What is the beta of this stock?

A)0.658
B)1.093
C)1.402
D)1.112
E)1.780

Question 67

A portfolio contains Stocks A,B,C,and D with betas of 0.92,1.28,1.07 and 1.52 for A through D,respectively.Stocks A and B have portfolio weights of 35 percent each.Stocks C and D have equal weights.What is the portfolio beta?

A).1.2147
B)1.1585
C)1.1099
D)1.0822
E)1.0131

Question 68

A portfolio worth $5,500 is invested in Stocks A and B plus a risk-free asset.A total of $2,500 is invested in Stock A with a beta of 1.27.Stock B has a beta of 0.89.How much needs to be invested in Stock B if the goal is to create a portfolio that will mimic the entire market?

A)−$894.20
B)$2,266.67
C)$1,482.08
D)$2,612.36
E)$3,408.15

Question 69

Stock A has an expected return of 16 percent,and stock B has an expected return of 8 percent.However,the risk of stock A as measured by its variance is 3.2 times that of stock B.If the two stocks are combined equally in a portfolio,what would be the portfolio's expected return?

A)11.50%
B)9.50%
C)12.00%
D)8.25%
E)14.10%

Question 70

A portfolio has a beta of 1.27.The portfolio consists of 25 percent U.S.Treasury bills,38 percent Stock A,and 37 percent Stock B.Stock A has a risk level equivalent to that of the overall market.What is the beta of Stock B?

A)1.54
B)1.49
C)2.02
D)1.79
E)2.41

Question 71

A portfolio consists of $18,740 of Stock K and $31,910 of Stock L.Stock K is expected to return 17 percent in a booming economy,lose 6 percent in a recession,and gain 9 percent in a normal economy.Stock L is expected to return 4 percent in a booming economy,13 percent in a recession,and 10 percent in a normal economy.The probability of the economy booming is 16 percent.What is the expected rate of return on the portfolio if the economy enters a recession?

A)-4.59%
B)-2.62%
C)5.97%
D)3.71%
E)0.74%

Question 72

The probability of the economy booming is 24 percent.Otherwise,the economy will be normal.Stock G is expected to return 19 percent in a boom and 12 percent in a normal economy.Stock H is expected to return 9 percent in a boom and 8 percent in a normal economy.What is the variance of a portfolio consisting of $3,800 of stock G and $7,400 of stock H?

A)0.000193
B)0.000168
C)0.000219
D)0.001387
E)0.001402

Question 73

A portfolio is equally weighted.Stock D has a standard deviation of 11.7,percent and Stock E has a standard deviation of 5.9 percent.The securities have a covariance of 0.0254.What is the portfolio variance?

A)0.012209
B)0.009006
C)0.010549
D)0.008590
E)0.016993

Question 74

A portfolio is expected to return 18 percent in a booming economy,13 percent in a normal economy,and lose 11 percent if the economy falls into a recession.The probability of a boom is 3 percent while the probability of a recession is 25 percent.What is the overall portfolio expected return?

A)8.40%
B)6.83%
C)7.15%
D)6.05%
E)2.81%

Question 75

A portfolio consists of 35 percent of Stock S and 65 percent of Stock T.Stock S is expected to return 15 percent if the economy booms,10 percent if it is normal,and lose 19 percent if it is recessionary.Stock T will return 26 percent in a boom,15 percent in a normal economy,and lose 40 percent in a recession.The probability of a boom is 5 percent and probability of a recession is 10 percent.What is the portfolio standard deviation?

A)11.69%
B)14.05%
C)14.22%
D)12.10%
E)12.33%

Question 76

Stock Q is expected to return 14 percent in a boom and 8 percent in a normal economy.Assume Stock R will return 11 percent in a boom and 10 percent in a normal economy.The probability of a boom is 13 percent.Otherwise,the economy will be normal.What is the standard deviation of a portfolio that is invested 48 percent in stock Q and 52 percent in stock R?

A)0.78%
B)1.42%
C)1.14%
D)0.67%
E)1.61%

Question 77

Your desired portfolio beta is 1.2.Currently,your portfolio consists of $2,300 invested in Stock A with a beta of 1.43 and $3,800 in Stock B with a beta of 0.79.You have an additional $1,500 to invest and want to divide it between Stock C with a beta of 1.59 and a risk-free asset.How much should you invest in the risk-free asset?

A)−$279.25
B)$50.25
C)−$200.15
D)$182.35
E)$246.08

Question 78

You would like to combine a risky stock with a beta of 1.87 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?

A)46.29%
B)53.48%
C)50.55%
D)47.45%
E)57.08%

Question 79

You have a two-stock portfolio with an expected return of 11.7 percent.Stock A has an expected return of 13.8 percent while Stock B is expected to return 9.2 percent.What is the portfolio weight of Stock A?

A)59.09%
B)57.82%
C)63.33%
D)54.35%
E)60.33%

Question 80

A portfolio consists of $38,312 of Stock A,$42,509 of Stock B,and $11,516 of Stock C.The expected returns on Stocks A,B,and C are 6.85 percent,12.08 percent,and 15.92 percent,respectively.What is the portfolio expected rate of return?

A)9.98%
B)11.21%
C)11.88%
D)10.39%
E)12.07%