Exam 11: Systematic Risk and the Equity Risk Premium

A linear regression was done to estimate the relation between Sprint's stock returns and the market's return.The intercept of the line was found to be 0.23 and the slope was 1.47.Which of the following statements is true regarding Sprint's stock?

Use the table for the question(s) below. Consider the following expected returns, volatilities, and correlations: -The volatility of a portfolio that is equally invested in Duke Energy and Microsoft is closest to:

The expected return is usually ________ the baseline risk-free rate of return that we demand to compensate for inflation and time value of money.

Use the table for the question(s) below. Consider the following expected returns, volatilities, and correlations: -The volatility of a portfolio that is equally invested in Wal-Mart and Microsoft is closest to:

Use the table for the question(s) below. Consider the following expected returns, volatilities, and correlations: -The volatility of a portfolio that is consists of a long position of $10,000 in Wal-Mart and a short position of $2000 in Microsoft is closest to:

While we are using historic return to estimate a stock's beta,why can't we use historic data to forecast the expected return for the stock?

You have invested $25,000 in RBC stock and $18,000 in TD stock.If you expect the return on RBC to be 6% in the next year,and the return on TD to be 4%,what is the expected return for your portfolio?

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 and the stocks returns have zero correlation,the overall volatility of returns of the portfolio is

Which of the following combinations of stocks would give you the biggest reduction in risk?

A stock market comprises 2000 shares of stock A and 2000 shares of stock B.The share prices for stocks A and B are $20 and $10,respectively.What is the capitalization of the market portfolio?

The market portfolio is the portfolio of all risky investments held

Air Canada stock has a standard deviation of 10%,while the market index standard deviation is 7%.If the correlation between Air Canada and the market index is 0.85,what is the beta of Air Canada stock?

Correlation is the degree to which the returns of two stocks share common risks.

How does the S&P/TSX Composite index rank in terms of number and market capitalization of Canadian public firms?

Loblaw's stock has a beta of 0.9,while Bombardier stock has a beta of 1.35.If the risk-free rate is 2%,and the market risk premium is 8%,what is the expected return on a portfolio with equal holdings of Loblaw's and Bombardier?

Use the table for the question(s) below. Consider the following returns: -The volatility on Home Depot's returns is closest to:

Use the table for the question(s) below. Consider the following returns: -The covariance between Lowes' and Home Depot's returns is closest to:

You expect General Motors (GM)to have a beta of 1 over the next year and the beta of Exxon Mobil (XOM)to be 1.2 over the next year.Also,you expect the volatility of General Motors to be 30% and that of Exxon Mobil to be 40% over the next year.Which stock has more systematic risk? Which stock has more total risk?

The systematic risk (beta)of a portfolio is ________ by holding more stocks,even if they each had the same systematic risk.

Use the information for the question(s) below. Suppose you have $10,000 in cash and you decide to borrow another $10,000 at a 6% interest rate to invest in the stock market. You invest the entire $20,000 in an exchange-traded fund (ETF) with a 12% expected return and a 20% volatility. -Assume that the ETF you invested in returns -10%.Then the realized return on your investment is closest to: