The following portfolio has an expected return of ________% and a beta of ________. $\begin{array}{cccc} \text { Security }&\text {Amount Invested }&\text {Expected Return}&\text { Beta }\\ \mathrm{X} & \$ 17,000 & 14.28 & .98 \\ \mathrm{Y} & \$ 12,000 & 7.8 & 1.33 \\ \mathrm{Z} & \$ 11,000 & 9.5 & 1.07 \end{array}$

A) 10.53; 1.13 B) 10.99; 1.11 C) 11.03; 1.28 D) 11.16; 1.11 E) 11.11; 1.16 A) 10.53; 1.13 B) 10.99; 1.11 C) 11.03; 1.28 D) 11.16; 1.11 E) 11.11; 1.16 B

What is the beta of a portfolio that consists of the following? \[\begin{array} { c r r } \text { Security } & \text {\$ Inveted } & \text { Beta } \\ \text { A } & \$ 5,000 & .79 \\ \text { B } & \$ 3,000 & 1.36 \\ \text { C } & \$ 5,000 & 1.01 \\ \text { D } & \$ 7,000 & 1.95 \end{array}\]

A) 1.01 B) 1.24 C) 1.26 D) 1.29 E) 1.32 A) 1.01 B) 1.24 C) 1.26 D) 1.29 E) 1.32

Which one of the following stocks has the highest expected risk premium? $\begin{array}{lcr} \text { Stock}& \text { Standard deviation }&\text { Beta }\\ \text { A } & 148 & 1.36 \\ \text { B } & 21 & .98 \\ \text { C } & 34 & 1.02 \\ \text { D } & 8 & 1.18\\ \text { E }&17&1.27 \end{array}$

A) A B) B C) C D) D E) E A) A B) B C) C D) D E) E

What is the covariance of Security A to the market given the following information? \[\begin{array} { c c c } \text { Year } & \text { R(a) } & R ( m ) \\ 1 & 20.00 & 17.00 \\ 2 & - 30.00 & - 7.00 \\ 3 & 36.00 & 20.00 \end{array}\]

A) 505.0 B) 514.1 C) 517.5 D) 523.5 E) 540.6 A) 505.0 B) 514.1 C) 517.5 D) 523.5 E) 540.6

Exam 12: Return, Risk, and the Security Market Line

The following portfolio has an expected return of % and a beta of . Security Amount Invested Expected Return Beta \ 17,000 14.28 .98 \ 12,000 7.8 1.33 \ 11,000 9.5 1.07

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(Multiple Choice)

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Question 1

Correct Answer:

Verified

B

The risk-free rate is 3.4% and the expected return on the market is 10.8%. Stock A has a beta of 1.18. For a given year, Stock A returned 13.6% while the market returned 11.8%. The systematic portion of the unexpected return was % and the unsystematic portion was %.

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(Multiple Choice)

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Question 2

Correct Answer:

Verified

C

Stock Y has a beta of .79 and an expected return of 7.93%. Stock Z has a beta of 1.31 and an expected return of 12.3%. What is the risk-free rate of return assuming that both Stock X and Stock Y are correctly priced?

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Question 3

Correct Answer:

Verified

B

A risky asset has a beta of 1.40 and an expected return of 17.6%. What is the risk-free rate if the risk-to-reward ratio is 8.4%?

(Multiple Choice)

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Question 4

Which one of the following is the theory that states that the value of a security is dependent upon the pure time value of money, the reward for bearing systematic risk, and the amount of systematic risk?

(Multiple Choice)

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Question 5

What is the beta of a portfolio that consists of the following? Security \ Inveted Beta A \ 5,000 .79 B \ 3,000 1.36 C \ 5,000 1.01 D \ 7,000 1.95

(Multiple Choice)

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Question 6

Which one of the following must be equal for two individual securities with differing betas if those securities are correctly priced according to the capital asset pricing model?

(Multiple Choice)

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Question 7

Brooke invested $4,500 in the stock market with the expectation of earning 6.25%. She actually earned 7.15% for the year. What is the amount of her unexpected return?

(Multiple Choice)

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Question 8

A risky security has a variance of .023983 and a covariance with the market of .0323. The variance of the market is .01839. What is the correlation of the risky security to the market?

(Multiple Choice)

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Question 9

Reed Plastics just announced the earnings per share for the quarter just ended were $.45. Analysts were expecting $.51. What is the amount of the surprise portion of the announcement?

(Multiple Choice)

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Question 10

Which one of the following stocks has the highest expected risk premium? Stock Standard deviation Beta A 148 1.36 B 21 .98 C 34 1.02 D 8 1.18 E 17 1.27

(Multiple Choice)

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Question 11

Which of the following are needed to compute the beta of an individual security? I. average return on the market for the period II. standard deviation of the security and the market III. returns on the security and the market for multiple time periods IV. correlation of the security to the market

(Multiple Choice)

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Question 12

Which of the following is expressed as E(RM)− Rƒ?

(Multiple Choice)

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Question 13

Which one of the following statements applies to unsystematic risk?

(Multiple Choice)

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Question 14

The market has a standard deviation of 10.8% while a risky security has a standard deviation of 22.5%. The covariance of the stock with the market is .0149. What is the beta of the stock?

(Multiple Choice)

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Question 15

What is the covariance of Security A to the market given the following information? Year R(a) R(m) 1 20.00 17.00 2 -30.00 -7.00 3 36.00 20.00

(Multiple Choice)

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Question 16

What is the beta of a risk-free security?

(Multiple Choice)

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Question 17

A stock has a beta of 1.58 and an expected return of 16.2%. The risk-free rate is 3.8%. What is the market risk premium?

(Multiple Choice)

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Question 18

The common stock of Industrial Technologies has an expected return of 12.4%. The market return is 9.2% and the risk-free return is 3.87%. What is the stock's beta?

(Multiple Choice)

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Question 19

A portfolio consists of two stocks and has a beta of 1.25. The first stock has a beta of 1.02 and comprises 30% of the portfolio. What is the beta of the second stock?

(Multiple Choice)

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Question 20

Exam 12: Return, Risk, and the Security Market Line

The following portfolio has an expected return of ________% and a beta of ________. Security Amount Invested Expected Return Beta \ 17,000 14.28 .98 \ 12,000 7.8 1.33 \ 11,000 9.5 1.07

The risk-free rate is 3.4% and the expected return on the market is 10.8%. Stock A has a beta of 1.18. For a given year, Stock A returned 13.6% while the market returned 11.8%. The systematic portion of the unexpected return was ________% and the unsystematic portion was ________%.

Stock Y has a beta of .79 and an expected return of 7.93%. Stock Z has a beta of 1.31 and an expected return of 12.3%. What is the risk-free rate of return assuming that both Stock X and Stock Y are correctly priced?

A risky asset has a beta of 1.40 and an expected return of 17.6%. What is the risk-free rate if the risk-to-reward ratio is 8.4%?

Which one of the following is the theory that states that the value of a security is dependent upon the pure time value of money, the reward for bearing systematic risk, and the amount of systematic risk?

What is the beta of a portfolio that consists of the following? Security \ Inveted Beta A \ 5,000 .79 B \ 3,000 1.36 C \ 5,000 1.01 D \ 7,000 1.95

Which one of the following must be equal for two individual securities with differing betas if those securities are correctly priced according to the capital asset pricing model?

Brooke invested $4,500 in the stock market with the expectation of earning 6.25%. She actually earned 7.15% for the year. What is the amount of her unexpected return?

A risky security has a variance of .023983 and a covariance with the market of .0323. The variance of the market is .01839. What is the correlation of the risky security to the market?

Reed Plastics just announced the earnings per share for the quarter just ended were $.45. Analysts were expecting $.51. What is the amount of the surprise portion of the announcement?

Which one of the following stocks has the highest expected risk premium? Stock Standard deviation Beta A 148 1.36 B 21 .98 C 34 1.02 D 8 1.18 E 17 1.27

Which of the following are needed to compute the beta of an individual security? I. average return on the market for the period II. standard deviation of the security and the market III. returns on the security and the market for multiple time periods IV. correlation of the security to the market

Which of the following is expressed as E(RM)− Rƒ?

Which one of the following statements applies to unsystematic risk?

The market has a standard deviation of 10.8% while a risky security has a standard deviation of 22.5%. The covariance of the stock with the market is .0149. What is the beta of the stock?

What is the covariance of Security A to the market given the following information? Year R(a) R(m) 1 20.00 17.00 2 -30.00 -7.00 3 36.00 20.00

What is the beta of a risk-free security?

A stock has a beta of 1.58 and an expected return of 16.2%. The risk-free rate is 3.8%. What is the market risk premium?

The common stock of Industrial Technologies has an expected return of 12.4%. The market return is 9.2% and the risk-free return is 3.87%. What is the stock's beta?

A portfolio consists of two stocks and has a beta of 1.25. The first stock has a beta of 1.02 and comprises 30% of the portfolio. What is the beta of the second stock?

A Brief History of Risk and Return

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Performance Evaluation and Risk Management

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The following portfolio has an expected return of % and a beta of . Security Amount Invested Expected Return Beta \ 17,000 14.28 .98 \ 12,000 7.8 1.33 \ 11,000 9.5 1.07

The risk-free rate is 3.4% and the expected return on the market is 10.8%. Stock A has a beta of 1.18. For a given year, Stock A returned 13.6% while the market returned 11.8%. The systematic portion of the unexpected return was % and the unsystematic portion was %.