Mike Flannery holds the following portfolio: $\begin{array}{lrr}\text { Stock }&\text { Investment }&\text { Beta }\\ A & \$ 150,000 & 1.40 \\ \mathrm{~B} & \$ 10,000 & 0.80 \\ \mathrm{C} & \$ 140,000 & 1.00 \\ \mathrm{D} & \$ 75,000 & 1.20\\ \text { Total }&\$375,000 \end{array}$ What is the portfolio's beta? Do not round your intermediate calculations.

A) 1.19 B) 1.36 C) 1.30 D) 1.47 E) 1.45 A) 1.19 B) 1.36 C) 1.30 D) 1.47 E) 1.45

Exam 8: Risk and Rates of Return

Stock A has an expected return of 10% and a standard deviation of 20%.Stock B has an expected return of 13% and a standard deviation of 30%.The risk-free rate is 5% and the market risk premium,r_M - r_RF,is 6%.Assume that the market is in equilibrium.Portfolio AB has 50% invested in Stock A and 50% invested in Stock B.The returns of Stock A and Stock B are independent of one another,i.e. ,the correlation coefficient between them is zero.Which of the following statements is CORRECT?

(Multiple Choice)

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Question 81

Taggart Inc.'s stock has a 50% chance of producing a 36% return,a 30% chance of producing a 10% return,and a 20% chance of producing a -28% return.What is the firm's expected rate of return? Do not round your intermediate calculations.

(Multiple Choice)

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Question 82

"Risk aversion" implies that investors require higher expected returns on riskier than on less risky securities.

(True/False)

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Question 83

Diversification will normally reduce the riskiness of a portfolio of stocks.

(True/False)

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Question 84

Tom O'Brien has a 2-stock portfolio with a total value of $100,000.$47,500 is invested in Stock A with a beta of 0.75 and the remainder is invested in Stock B with a beta of 1.42.What is his portfolio's beta? Do not round your intermediate calculations.Round your final answer to 2 decimal places.

(Multiple Choice)

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Question 85

Portfolio A has but one security,while Portfolio B has 100 securities.Because of diversification effects,we would expect Portfolio B to have the lower risk.However,it is possible for Portfolio A to be less risky.

(True/False)

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Question 86

Which of the following statements is CORRECT?

(Multiple Choice)

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Question 87

Mike Flannery holds the following portfolio: Stock Investment Beta A \ 150,000 1.40 \ 10,000 0.80 \ 140,000 1.00 \ 75,000 1.20 Total \3 75,000 What is the portfolio's beta? Do not round your intermediate calculations.

(Multiple Choice)

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(84)

Question 88

Assume that two investors each hold a portfolio,and that portfolio is their only asset.Investor A's portfolio has a beta of minus 2.0,while Investor B's portfolio has a beta of plus 2.0.Assuming that the unsystematic risks of the stocks in the two portfolios are the same,then the two investors face the same amount of risk.However,the holders of either portfolio could lower their risks,and by exactly the same amount,by adding some "normal" stocks with beta = 1.0.

(True/False)

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Question 89

The slope of the SML is determined by the value of beta.

(True/False)

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Question 90

A stock's beta is more relevant as a measure of risk to an investor who holds only one stock than to an investor who holds a well-diversified portfolio.

(True/False)

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Question 91

Which of the following statements is CORRECT?

(Multiple Choice)

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Question 92

You observe the following information regarding Companies X and Y: -Company X has a higher expected return than Company Y. -Company X has a lower standard deviation of returns than Company Y. -Company X has a higher beta than Company Y. Given this information,which of the following statements is CORRECT?

(Multiple Choice)

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Question 93

Assume that to cool off the economy and decrease expectations for inflation,the Federal Reserve tightened the money supply,causing an increase in the risk-free rate,r_RF.Investors also became concerned that the Fed's actions would lead to a recession,and that led to an increase in the market risk premium, (r_M - r_RF).Under these conditions,with other things held constant,which of the following statements is most correct?

(Multiple Choice)

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Question 94

Stocks A and B each have an expected return of 15%,a standard deviation of 20%,and a beta of 1.2.The returns on the two stocks have a correlation coefficient of +0.6.You have a portfolio that consists of 50% A and 50% B.Which of the following statements is CORRECT?

(Multiple Choice)

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Question 95

Assume that the risk-free rate is 6% and the market risk premium is 5%.Given this information,which of the following statements is CORRECT?

(Multiple Choice)

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Question 96

In a portfolio of three randomly selected stocks,which of the following could NOT be true,i.e. ,which statement is false?

(Multiple Choice)

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Question 97

Stocks A,B,and C all have an expected return of 10% and a standard deviation of 25%.Stocks A and B have returns that are independent of one another,i.e. ,their correlation coefficient,r,equals zero.Stocks A and C have returns that are negatively correlated with one another,i.e. ,r is less than 0.Portfolio AB is a portfolio with half of its money invested in Stock A and half in Stock B.Portfolio AC is a portfolio with half of its money invested in Stock A and half invested in Stock C.Which of the following statements is CORRECT?

(Multiple Choice)

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Question 98

An individual stock's diversifiable risk,which is measured by its beta,can be lowered by adding more stocks to the portfolio in which the stock is held.

(True/False)

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Question 99

Which of the following statements is CORRECT?

(Multiple Choice)

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Question 100

Showing 81 - 100 of 147

Taggart Inc.'s stock has a 50% chance of producing a 36% return,a 30% chance of producing a 10% return,and a 20% chance of producing a -28% return.What is the firm's expected rate of return? Do not round your intermediate calculations.

"Risk aversion" implies that investors require higher expected returns on riskier than on less risky securities.

Diversification will normally reduce the riskiness of a portfolio of stocks.

Tom O'Brien has a 2-stock portfolio with a total value of $100,000.$47,500 is invested in Stock A with a beta of 0.75 and the remainder is invested in Stock B with a beta of 1.42.What is his portfolio's beta? Do not round your intermediate calculations.Round your final answer to 2 decimal places.

Portfolio A has but one security,while Portfolio B has 100 securities.Because of diversification effects,we would expect Portfolio B to have the lower risk.However,it is possible for Portfolio A to be less risky.

Which of the following statements is CORRECT?

Mike Flannery holds the following portfolio: Stock Investment Beta A \ 150,000 1.40 \ 10,000 0.80 \ 140,000 1.00 \ 75,000 1.20 Total \3 75,000 What is the portfolio's beta? Do not round your intermediate calculations.

The slope of the SML is determined by the value of beta.

A stock's beta is more relevant as a measure of risk to an investor who holds only one stock than to an investor who holds a well-diversified portfolio.

Which of the following statements is CORRECT?

Stocks A and B each have an expected return of 15%,a standard deviation of 20%,and a beta of 1.2.The returns on the two stocks have a correlation coefficient of +0.6.You have a portfolio that consists of 50% A and 50% B.Which of the following statements is CORRECT?

Assume that the risk-free rate is 6% and the market risk premium is 5%.Given this information,which of the following statements is CORRECT?

In a portfolio of three randomly selected stocks,which of the following could NOT be true,i.e. ,which statement is false?

An individual stock's diversifiable risk,which is measured by its beta,can be lowered by adding more stocks to the portfolio in which the stock is held.

Which of the following statements is CORRECT?

An Overview of Financial Management

Financial Markets and Institutions

Financial Statements,cash Flow and Taxes

Analysis of Financial Statements

Time Value of Money

Interest Rates

Bonds and Their Valuation

Stocks and Their Valuation

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Real Options and Other Topics in Capital Budgeting

Capital Structure and Leverage

Distributions to Shareholders: Dividends and Share Repurchases

Working Capital Management

Financial Planning and Forecasting

Derivatives and Risk Management

Multinational Financial Management

Hybrid Financing: Preferred Stock,leasing,warrants,and Convertibles

Mergers and Acquisitions

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