Exam 6: Risk and Return

hold a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each.The portfolio's beta is 1.12.You plan to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 1.80.What will the portfolio's new beta be?

Which of the following statements is CORRECT?

Risk-averse investors require higher rates of return on investments whose returns are highly uncertain, and most investors are risk averse.

Stock A has a beta of 1.2 and a standard deviation of 25%.Stock B has a beta of 1.4 and a standard deviation of 20%.Portfolio AB was created by investing in a combination of Stocks A and B.Portfolio AB has a beta of 1.25 and a standard deviation of 18%.Which of the following statements is CORRECT?

Assume that you hold a well-diversified portfolio that has an expected return of 11.0% and a beta of 1.20.You are in the process of buying 1,000 shares of Omega Corp at $10 a share and adding it to your portfolio.Omega has an expected return of 13.0% and a beta of 1.50.The total value of your current portfolio is $90,000.What will the expected return and beta on the portfolio be after the purchase of the Omega stock?

Moerdyk Company's stock has a beta of 1.40, the risk-free rate is 4.25%, and the market risk premium is 5.50%.What is the firm's required rate of return?

stock with a beta equal to -1.0 has zero systematic (or market) risk.