Exam 10: Estimating Risk and Return

Compute the standard deviation of the expected return given these three economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth 0)2 30% Slow Growth 0)5 6% Recession 0)3 -2%

Compute the standard deviation given these four economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth 0)35 40% Slow Growth 0)45 10% Recession 0)10 -10% Depression 0)10 -100%

Hastings Entertainment has a beta of 1.24. If the market return is expected to be 10 percent and the risk-free rate is 4 percent, what is Hastings' required return?

You obtain beta estimates of General Electric from two different online sources and you are surprised to find that they are so different. Which of the following would NOT be a correct explanation for the difference?

Whenever a set of stock prices go unnaturally high and subsequently crash down, the market experiences what we call a(n)

You have a portfolio with a beta of 0.9. What will be the new portfolio beta if you keep 40 percent of your money in the old portfolio and 60 percent in a stock with a beta of 1.5?

A company has a beta of 0.85. If the market return is expected to be 9 percent and the risk-free rate is 2.5 percent, what is the company's required return?

If the risk-free rate is 10 percent and the market risk premium is 4 percent, what is the required return for the market?

Compute the expected return and standard deviation given these four economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth 0)20 60% Slow Growth 0)50 13% Recession 0)15 -15% Depression 0)15 -45%

If the Japanese stock market bubble peaked at 37,500, and two and a half years later it had fallen to 25,900, what was the percentage decline? t

Which of these refers to something that has not been released to the public, but is known by few individuals, likely company insiders?

Which of these is the reward for taking systematic stock market risk?

You hold a diversified portfolio consisting of $1,000 investment in each of 10 different stocks. The portfolio has a beta of 0.8. You have decided to sell one of your stocks that has a beta equal to 1.1 for $1,000. You will purchase $1,000 of a new stock with a beta of 2.5. After these two transactions (sell and buy), what will be the beta of the new portfolio?

A manager believes his firm will earn a 16 percent return next year. His firm has a beta of 1.5, the expected return on the market is 14 percent, and the risk-free rate is 4 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is undervalued or overvalued.

Which of the following are the stocks of small companies that are priced below $1 per share?

A company has a beta of 0.50. If the market return is expected to be 12 percent and the risk-free rate is 5 percent, what is the company's required return?

Special rights given to some employees to buy a specific number of shares of the company stock at a fixed price during a specific period of time are known as

A stock has an expected return of 9.5 percent, the risk-free rate is 2 percent and the return on the market is 8 percent. What is this stock's beta?

Which of the following is the use of debt to increase an investment position?

Which of the following is the asset pricing theory based on a beta, a measure of market risk?