Exam 11: Systematic Risk and the Equity Risk Premium

A stock market comprises 5000 shares of stock A and 2000 shares of stock B.Assume the share prices for stocks A and B are $20 and $35,respectively.If you have $15,000 to invest and you want to hold the market portfolio,how much of your money will you invest in Stock A?

A linear regression to estimate the relation between Research in Motion's stock returns and the market's return gives the best-fitting line that represents the relation between the stock and the market.The slope of this line is our estimate of

What role does the standard deviations of two assets play in computation of the expected return of the two asset portfolio?

Use the information for the question(s) below. Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT) at $50 per share, 200 shares of Lowes (LOW) at $30 per share, and 100 shares of Ball Corporation (BLL) at $40 per share. -The weight of Ball Corporation in your portfolio is:

You expect General Motors (GM)to have a beta of 1.3 over the next year and the beta of Exxon Mobil (XOM)to be 0.9 over the next year.Also,you expect the volatility of General Motors to be 40% and that of Exxon Mobil to be 30% over the next year.Which stock has more systematic risk? Which stock has more total risk?

What is the lowest risk possible by selecting two stocks that are perfectly negatively correlated?

Suppose over the next year Ball has a return of 12.5%,Lowes has a return of 20%,and Abbott Labs has a return of -10%.The return on your portfolio over the year is:

When we form an equally weighted portfolio of stocks and keep increasing the number of stocks in the portfolio,the volatility of the portfolio also increases.

You observe that AT&T stock and the S&P 500 have the following weekly returns: If this pattern of stock returns is typical of AT&T stock,and you calculated a beta against the S&P 500,which of the following is true?

Potash Corp stock has a beta of 1.2,while Tim Horton's stock has a beta of 1.7.If the risk-free rate is 2.2%,and the market risk premium is 7%,what is the expected return on a portfolio with 40% weight in Potash and the remainder in Tim Horton's?

In a two-asset portfolio,what happens to the portfolio weight of the better performing asset?

The volatility of Home Depot share prices is 30% and that of General Motors shares is 30%.When I hold both stocks in my portfolio,the overall volatility of the portfolio is:

A portfolio comprises two stocks,A and B,with equal amounts of money invested in each.If stock A's stock price increases and that of stock B decreases,the weight of stock A in the portfolio will increase.

As we add more uncorrelated stocks to a portfolio where the stocks are held in equal weights,the benefit of diversification is most dramatic

Stocks tend to move together if they are affected by

You expect General Motors (GM)to have a beta of 1.5 over the next year and the beta of Exxon Mobil (XOM)to be 1.9 over the next year.Also,you expect the volatility of General Motors to be 50% and that of Exxon Mobil to be 35% over the next year.Which stock has more systematic risk? Which stock has more total risk?

The beta of the market portfolio is:

Your portfolio has 20% of its value invested in Bombardier and the remainder invested in Lululemon.Bombardier stock has a volatility of 15%,while Lululemon stock has a volatility of 12%.If the correlation between Bombardier and Lululemon is 0,what is the standard deviation of your portfolio?

You have invested $12,000 in RBC stock,$8,000 in TD stock,and $6,000 in WestJet stock.If you expect the return on RBC to be 5% in the next year,the return on TD to be 3%,and the return on WestJet to be 8%,what is the expected return for your portfolio?

Air Canada stock has a standard deviation of 18%,while the market index standard deviation is 8%.If the correlation between Air Canada and the market index is 0.45,what is the beta of Air Canada stock?