Exam 11: Return Amcq Risk: the Capital Asset Pricing Model Capm

The variance of Stock A is 0.005492,the variance of Stock B is 0.012394,and the covariance between the two is 0.0034.What is the correlation coefficient?

Assume the risk-free rate and the market risk premium are both positive.Trevor currently owns a portfolio consisting of risky and risk-free securities.The portfolio has an expected return of 11.2 percent,a standard deviation of 16.2 percent,and a beta of 1.21.He has decided that he would prefer a higher expected return.Which one of these actions should he take?

The capital market line

Stock A has an expected return of 16 percent,and stock B has an expected return of 8 percent.However,the risk of stock A as measured by its variance is 3.2 times that of stock B.If the two stocks are combined equally in a portfolio,what would be the portfolio's expected return?

Assume you are looking at a security market line graph.Where would an overpriced stock with a beta of 0.98 plot on that graph?

The market risk premium is computed by

A portfolio consists of two stocks with Stock A having a weight of 41 percent.Stock A has a standard deviation of 16.78 percent,and Stock B's standard deviation is 8.44 percent.The stocks have a covariance of −0.0063.What is the portfolio variance?

A portfolio has a beta of 1.27.The portfolio consists of 25 percent U.S.Treasury bills,38 percent Stock A,and 37 percent Stock B.Stock A has a risk level equivalent to that of the overall market.What is the beta of Stock B?

Which one of the following statements is correct concerning the standard deviation of a portfolio?

Unsystematic risk

A portfolio consists of five securities that have individual betas of 1.38,0.87,1.02,1.49,and 0.67.You do not know the portfolio weight of each security.What do you know with certainty?

A portfolio consists of 33 percent of Stock X,52 percent of Stock Y,and 15 percent of Stock Z.Stock X has a beta of 0.94,Stock Y has a beta of 1.21,and Stock Z has a beta of 1.08.What is the portfolio beta?

The risk premium for an individual security is computed by

The probabilities of an economic boom,normal economy,and a recession are 15 percent,83 percent,and 2 percent,respectively.For these economic states,Stock A has deviations from its expected returns of −0.03,0.01,and 0.02 for the three economic states respectively.Stock B has deviations from its expected returns of 0.15,0.06,and −0.09 for the three economic states,respectively.What is the covariance of the two stocks?

Stock Q is expected to return 14 percent in a boom and 8 percent in a normal economy.Assume Stock R will return 11 percent in a boom and 10 percent in a normal economy.The probability of a boom is 13 percent.Otherwise,the economy will be normal.What is the standard deviation of a portfolio that is invested 48 percent in stock Q and 52 percent in stock R?

The covariance of two securities is

RTF stock is expected to return 11 percent in a normal economy and lose 15 percent in a recession.The probability of a recession is 33 percent and the probability of a booming economy is zero.What is the variance of the returns on RTF stock?

The portfolio expected return considers which of the following factors? I.The amount of money currently invested in each individual security II)Various levels of economic activity III)The performance of each stock given various economic scenarios IV)The probability of various states of the economy occurring

KNF stock is quite cyclical.In a boom economy,the stock is expected to return 34 percent in comparison to 13 percent in a normal economy and a negative 22 percent in a recessionary period.The probability of a recession is 15 percent while the chance of a boom is 4 percent.What is the standard deviation of the returns this stock?

The risk-free rate of return is 2.2 percent,and the market risk premium is 7.46 percent.What is the expected rate of return on a stock with a beta of 1.08?