Exam 12: Risk, Return, and Capital Budgeting

Discuss the nature and uses of CAPM,including the method of determining expected returns.

What is the most logical explanation for a +2.0% return on a stock with a Beta of 1.0 in a month where the market returned +1.0%?

Which of the following is most likely correct for a diversified stock portfolio that exhibits a higher standard deviation than the market index?

The slope of the regression line that exhibits the past relationship between a stock's return and the market's return is the:

As a project's Beta increases,the project's opportunity cost of capital increases.

Why is Beta thought to be a more relevant measure of risk than standard deviation for a diversified investor?

The line plotted to fit observations of a stock's returns versus the market's returns determines the:

If each scenario is equally likely,find the expected rate of return on the market portfolio and on each stock.

If the line measuring a stock's historic returns against the market's historic returns has a slope greater than 1.0,then the:

Macro events only are reflected in the performance of the market portfolio because:

A considerable scattering in the plot of points representing the historic returns of a stock versus the returns on the market indicates the:

What type of risk is properly reflected in a project's discount rate?

What return would be expected by an investor whose portfolio was 25% market portfolio and 75% Treasury bills if the risk-free rate was 7% and the market risk premium was 8%?

Determine the expected return of a company's stock given a risk free rate of 7%,an expected market return of 12%,a market risk premium of 5% and a company Beta of 1.5.

A project is determined to have equal probability of generating $1 million annually or $500,000 annually for four years.The initial outlay is $2 million.The expected return on Treasury bills is 6% and the market risk premium is 8%.What is the highest project Beta that will justify acceptance of the project?

Which of the following adjustment techniques would be preferred to account for additional project risk?

What is the Beta of a three-stock portfolio including 25% of Stock A with a Beta of .90,40% Stock B with a Beta of 1.05,and 35% Stock C with a Beta of 1.73?

The sensitivity of a stock's returns to the returns on a market portfolio is referred to as the:

When the overall market experiences a decline of 8%,an investor with a portfolio of aggressive stocks will probably experience:

If a security plots below the security market line,it is: