Exam 10: Capital Markets and the Pricing of Risk

Use the following information to answer the question(s)below. Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%.Security "X" goes up on average by 29% when the market goes up and goes down by 11% when the market goes down.Security "Y" goes down on average by 16% when the market goes up and goes up by 16% when the market goes down.Security "Z" goes up on average by 4% when the market goes up and goes up by 4% when the market goes down. -The beta for security "X" is closest to:

Use the table for the question(s)below. Consider the following realized annual returns: -Suppose that you want to use the 10-year historical average return on the Market to forecast the expected future return on the Market.Calculate the 95% confidence interval for your estimate of the expected return.

Use the following information to answer the question(s)below. -If the market risk premium is 6% and the risk-free rate is 4%,then the expected return of investing in Merck is closest to:

Which of the following statements is FALSE?

Which of the following is NOT a diversifiable risk?

Consider a portfolio that consists of an equal investment in 20 firms.For each of these firms,there is a 70% probability that the firms will have a 16% return and a 30% probability that they will have a -8% return.Each of these firms' returns is independent of all others.The standard deviation of this portfolio is closest to:

Use the information for the question(s)below. Suppose that in the coming year,you expect Exxon-Mobil stock to have a volatility of 42% and a beta of 0.9,and Merck's stock to have a volatility of 24% and a beta of 1.1.The risk-free interest rate is 4% and the market's expected return is 12%. -The cost of capital for a project with the same beta as Merck's stock is closest to:

Use the following information to answer the question(s)below. Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%.Security "X" goes up on average by 29% when the market goes up and goes down by 11% when the market goes down.Security "Y" goes down on average by 16% when the market goes up and goes up by 16% when the market goes down.Security "Z" goes up on average by 4% when the market goes up and goes up by 4% when the market goes down. -The expected return on a security with a beta of 0.8 is closest to:

Use the following information to answer the question(s)below. Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%.Security "X" goes up on average by 29% when the market goes up and goes down by 11% when the market goes down.Security "Y" goes down on average by 16% when the market goes up and goes up by 16% when the market goes down.Security "Z" goes up on average by 4% when the market goes up and goes up by 4% when the market goes down. -The expected return on a security with a beta of 1.2 is closest to:

Suppose that KAN's beta is 1.5.If the market risk premium is 8% and the risk-free interest rate is 4%,then the expected return for KAN stock is?

Do expected returns for individual stocks increase proportionately with volatility?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Use the table for the question(s)below. Consider the following realized annual returns: -Using the data provided in the table,calculate the average annual return,the variance of the annual returns,and the standard deviation of the average returns for the market from 2000 to 2009.

Use the table for the question(s)below. Consider the following realized annual returns: -The variance of the returns on the Index from 2000 to 2009 is closest to:

Suppose that Luther's beta is 0.9.If the market risk premium is 8% and the risk-free interest rate is 4%,then the expected return for Luther stock is?

Which of the following statements is FALSE?

Use the table for the question(s)below. Consider the following realized annual returns: -The variance of the returns on Stock A from 2000 to 2009 is closest to:

Which of the following statements is FALSE?