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

Which one of the following would tend to indicate that a portfolio is being effectively diversified?

OLG stock has a beta of 0.98 and an expected return of 10.52 percent.The risk-free rate of return is 3.02 percent,and the market rate of return is 10.47 percent.Which one of the following statements is true given this information?

A portfolio consists of $18,740 of Stock K and $31,910 of Stock L.Stock K is expected to return 17 percent in a booming economy,lose 6 percent in a recession,and gain 9 percent in a normal economy.Stock L is expected to return 4 percent in a booming economy,13 percent in a recession,and 10 percent in a normal economy.The probability of the economy booming is 16 percent.What is the expected rate of return on the portfolio if the economy enters a recession?

The probabilities of an economic boom,normal economy,and a recession are 2 percent,93 percent,and 5 percent,respectively.For these economic states,Stock A has deviations from its expected returns of 0.04,0.07,and −0.11 for the three economic states respectively.Stock B has deviations from its expected returns of 0.14,0.08,and −0.22 for the three economic states,respectively.What is the covariance of the two stocks?

Amy has a portfolio with a beta of 1.26 but has decided to lower her investment risk.Adding which one of the following securities to her portfolio is most assuredly going to lower the risk of the portfolio?

The expected return on HiLo stock is 13.36 percent while the expected return on the market is 11.87 percent.The beta of HiLo is 1.14.What is the risk-free rate of return?

What is the first step an investor takes when making an investment decision according to the separation principle?

A portfolio is invested 54 percent in Stock K and 46 percent in Bond L.The bond has an expected return of 6.85 percent.What is the expected rate of return on Stock K if the portfolio expected return is 10.25 percent?

The Inferior Goods Co.stock is expected to earn 18 percent in a recession,10 percent in a normal economy,and lose 21 percent in a booming economy.The probability of a boom is 22 percent while the probability of a normal economy is 75 percent.What is the expected rate of return on this stock?

Over time,the unexpected return on a company's stock is expected to equal

Which one of the following is an example of systematic risk?

The combination of the efficient set of portfolios with a riskless lending and borrowing rate results in the

A portfolio consists of $38,312 of Stock A,$42,509 of Stock B,and $11,516 of Stock C.The expected returns on Stocks A,B,and C are 6.85 percent,12.08 percent,and 15.92 percent,respectively.What is the portfolio expected rate of return?

Alpha stock has a beta of 1.29.The risk-free rate of return is 3.2 percent,and the market rate of return is 10.7 percent.What is the Alpha stock risk premium?

The correlation between stocks A and B is equal to the

You would like to combine a risky stock with a beta of 1.87 with U.S.Treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market.What percentage of the portfolio should be invested in the risky asset?

The market risk of a portfolio of two stocks will be reduced the most if the securities within that portfolio have a correlation of

The excess return earned by an asset that has a beta of one over that earned by a risk-free asset is referred to as the

Well-diversified portfolios have negligible

A portfolio consists of 35 percent of Stock S and 65 percent of Stock T.Stock S is expected to return 15 percent if the economy booms,10 percent if it is normal,and lose 19 percent if it is recessionary.Stock T will return 26 percent in a boom,15 percent in a normal economy,and lose 40 percent in a recession.The probability of a boom is 5 percent and probability of a recession is 10 percent.What is the portfolio standard deviation?