Question 1

What is the covariance of security A to the market given the following information?

Accepted Answer

A) 75.0 
B) 80.1 
C) 83.8 
D) 87.0 
E) 91.1 
A) 75.0 
B) 80.1 
C) 83.8 
D) 87.0 
E) 91.1

Question 2

Which one of the following will increase the slope of the security market line? Assume all else constant.

Accepted Answer

A) increasing the beta of an efficiently-priced portfolio 
B) increasing the risk-free rate 
C) increasing the market risk premium 
D) decreasing the market rate of return 
E) replacing a low-beta stock with a high-beta stock within a portfolio 
A) increasing the beta of an efficiently-priced portfolio 
B) increasing the risk-free rate 
C) increasing the market risk premium 
D) decreasing the market rate of return 
E) replacing a low-beta stock with a high-beta stock within a portfolio

Question 3

Phil realized a total return of 13.2 percent which is less than his expected return of 14.4 percent.What is the amount of his unexpected return?

Accepted Answer

A) -1.2 percent 
B) -0.6 percent 
C) 0.6 percent 
D) 1.2 percent 
E) 1.3 percent 
A) -1.2 percent 
B) -0.6 percent 
C) 0.6 percent 
D) 1.2 percent 
E) 1.3 percent

Question 4

Which one of the following is the type of risk that only affects either a single firm or just a small number of firms?

Accepted Answer

A) unexpected 
B) market 
C) systematic 
D) unsystematic 
E) expected 
A) unexpected 
B) market 
C) systematic 
D) unsystematic 
E) expected

Question 5

Uptown Markets stock has a standard deviation of 16.8 percent and a covariance with the market of .0178.The market has a standard deviation of 13.6 percent.What is the correlation of this stock with the market?

Accepted Answer

A) .74 
B) .78 
C) .87 
D) .89 
E) .91 
A) .74 
B) .78 
C) .87 
D) .89 
E) .91

Question 6

Which of the following correctly identifies the factors included in the Fama-French three-factor model?

Accepted Answer

A) standard deviation, beta, and company size 
B) the risk-free rate, beta, and the market risk premium 
C) company size, company industry, and beta 
D) price-earnings ratios, beta, and book-to-market ratios 
E) beta, company size, and book-to-market ratios 
A) standard deviation, beta, and company size 
B) the risk-free rate, beta, and the market risk premium 
C) company size, company industry, and beta 
D) price-earnings ratios, beta, and book-to-market ratios 
E) beta, company size, and book-to-market ratios

Question 7

The following portfolio has an expected return of _____ percent and a beta of _____.

Accepted Answer

A) 10.53; 1.13 
B) 10.99; 1.11 
C) 11.03; 1.28 
D) 11.16; 1.11 
E) 11.11; 1.16 
A) 10.53; 1.13 
B) 10.99; 1.11 
C) 11.03; 1.28 
D) 11.16; 1.11 
E) 11.11; 1.16

Question 8

Farm Tractors,Inc.,stock has a beta of 1.12 and an expected return of 12.8 percent.The risk-free rate is 3.84 percent.What is the market rate of return?

Accepted Answer

A) 6.67 percent 
B) 8.90 percent 
C) 9.08 percent 
D) 11.84 percent 
E) 12.63 percent 
A) 6.67 percent 
B) 8.90 percent 
C) 9.08 percent 
D) 11.84 percent 
E) 12.63 percent

Question 9

The amount of risk premium allocated to Security A is dependent upon which one of the following?

Accepted Answer

A) unsystematic risk associated only with Security A 
B) total risk associated with Security A's classification 
C) total surprise associated with Security A 
D) the difference between the expected return and the actual return on Security A 
E) systematic risk associated with Security A 
A) unsystematic risk associated only with Security A 
B) total risk associated with Security A's classification 
C) total surprise associated with Security A 
D) the difference between the expected return and the actual return on Security A 
E) systematic risk associated with Security A

Question 10

A stock has a standard deviation of 25.4 percent and a covariance with the market of .0160.The market has a standard deviation of 12.2 percent.What is the beta of this stock?

Accepted Answer

A) .294 
B) .572 
C) .926 
D) .973 
E) 1.075 
A) .294 
B) .572 
C) .926 
D) .973 
E) 1.075

Question 11

Stock A is a risky asset that has a beta of 1.4 and an expected return of 13.2 percent.Stock B is also a risky asset and has a beta of 1.25.The risk-free rate is 5.5 percent.Assuming both stocks are correctly priced,what is the expected return on stock B?

Accepted Answer

A) 11.90 percent 
B) 12.11 percent 
C) 12.29 percent 
D) 12.38 percent 
E) 12.46 percent 
A) 11.90 percent 
B) 12.11 percent 
C) 12.29 percent 
D) 12.38 percent 
E) 12.46 percent

Question 12

Which one of the following measures systematic risk?

Accepted Answer

A) beta 
B) alpha 
C) variance 
D) standard deviation 
E) correlation coefficient 
A) beta 
B) alpha 
C) variance 
D) standard deviation 
E) correlation coefficient

Question 13

Stock X has a beta of .95 and an expected return of 10.8 percent.Stock Y has a beta of 1.2 and an expected return of 13.1 percent.What is the risk-free rate of return assuming that both stock X and stock Y are correctly priced?

Accepted Answer

A) 1.10 percent 
B) 1.20 percent 
C) 2.06 percent 
D) 3.30 percent 
E) 3.50 percent 
A) 1.10 percent 
B) 1.20 percent 
C) 2.06 percent 
D) 3.30 percent 
E) 3.50 percent

Question 14

A stock has an expected return of 14.59 percent and a beta of 1.35.What is the risk-free rate if the market rate is 12.7 percent?

Accepted Answer

A) 6.48 percent 
B) 6.92 percent 
C) 7.01 percent 
D) 7.30 percent 
E) 7.90 percent 
A) 6.48 percent 
B) 6.92 percent 
C) 7.01 percent 
D) 7.30 percent 
E) 7.90 percent

Question 15

The risk-free rate is 3.4 percent and the expected return on the market is 10.8 percent.Stock A has a beta of 1.18.For a given year,stock A returned 13.6 percent while the market returned 11.8 percent.The systematic portion of the unexpected return was _____ percent and the unsystematic portion was _____ percent.

Accepted Answer

A) 1.045; 0.207 
B) 1.145; 0.126 
C) 1.180; 0.288 
D) 1.344; 1.443 
E) 1.500; 1.449 
A) 1.045; 0.207 
B) 1.145; 0.126 
C) 1.180; 0.288 
D) 1.344; 1.443 
E) 1.500; 1.449

Question 16

Which one of the following stocks has the highest expected risk premium?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
E) E 
A) A 
B) B 
C) C 
D) D 
E) E

Question 17

According to the systematic risk principle,the reward for bearing risk is based on which one of the following types of risk?

Accepted Answer

A) unsystematic 
B) firm specific 
C) expected 
D) systematic 
E) diversifiable 
A) unsystematic 
B) firm specific 
C) expected 
D) systematic 
E) diversifiable

Question 18

A portfolio of securities has a beta of 1.14.Given this,you know that:

Accepted Answer

A) adding another security to the portfolio must lower the portfolio beta. 
B) the portfolio has more risk than a risk-free asset but less risk than the market. 
C) each of the securities in the portfolio has more risk than an average security. 
D) the portfolio has 14 percent more risk than a risk-free security. 
E) the expected return on the portfolio is greater than the expected market return. 
A) adding another security to the portfolio must lower the portfolio beta. 
B) the portfolio has more risk than a risk-free asset but less risk than the market. 
C) each of the securities in the portfolio has more risk than an average security. 
D) the portfolio has 14 percent more risk than a risk-free security. 
E) the expected return on the portfolio is greater than the expected market return.

Question 19

Which one of the following is expressed as "E(RM)- Rf"?

Accepted Answer

A) market risk premium 
B) individual security risk premium 
C) real rate of return 
D) total expected rate of return 
E) market rate of return 
A) market risk premium 
B) individual security risk premium 
C) real rate of return 
D) total expected rate of return 
E) market rate of return

Question 20

A risky asset has a beta of .90 and an expected return of 7.4 percent.What is the reward-to-risk ratio if the risk-free rate is 2.69 percent?

Accepted Answer

A) 4.04 percent 
B) 5.23 percent 
C) 6.51 percent 
D) 8.41 percent 
E) 11.59 percent 
A) 4.04 percent 
B) 5.23 percent 
C) 6.51 percent 
D) 8.41 percent 
E) 11.59 percent

What is the covariance of security A to the market given the following information?

Which one of the following will increase the slope of the security market line? Assume all else constant.

Phil realized a total return of 13.2 percent which is less than his expected return of 14.4 percent.What is the amount of his unexpected return?

Which one of the following is the type of risk that only affects either a single firm or just a small number of firms?

Uptown Markets stock has a standard deviation of 16.8 percent and a covariance with the market of .0178.The market has a standard deviation of 13.6 percent.What is the correlation of this stock with the market?

Which of the following correctly identifies the factors included in the Fama-French three-factor model?

The following portfolio has an expected return of _ percent and a beta of _.

Farm Tractors,Inc.,stock has a beta of 1.12 and an expected return of 12.8 percent.The risk-free rate is 3.84 percent.What is the market rate of return?

The amount of risk premium allocated to Security A is dependent upon which one of the following?

A stock has a standard deviation of 25.4 percent and a covariance with the market of .0160.The market has a standard deviation of 12.2 percent.What is the beta of this stock?

Stock A is a risky asset that has a beta of 1.4 and an expected return of 13.2 percent.Stock B is also a risky asset and has a beta of 1.25.The risk-free rate is 5.5 percent.Assuming both stocks are correctly priced,what is the expected return on stock B?

Which one of the following measures systematic risk?

Stock X has a beta of .95 and an expected return of 10.8 percent.Stock Y has a beta of 1.2 and an expected return of 13.1 percent.What is the risk-free rate of return assuming that both stock X and stock Y are correctly priced?

A stock has an expected return of 14.59 percent and a beta of 1.35.What is the risk-free rate if the market rate is 12.7 percent?

Which one of the following stocks has the highest expected risk premium?

According to the systematic risk principle,the reward for bearing risk is based on which one of the following types of risk?

A portfolio of securities has a beta of 1.14.Given this,you know that:

Which one of the following is expressed as "E(R_M)- R_f"?

A risky asset has a beta of .90 and an expected return of 7.4 percent.What is the reward-to-risk ratio if the risk-free rate is 2.69 percent?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 12: Return, Risk, and the Security Market Line

What is the covariance of security A to the market given the following information?

Which one of the following will increase the slope of the security market line? Assume all else constant.

Phil realized a total return of 13.2 percent which is less than his expected return of 14.4 percent.What is the amount of his unexpected return?

Which one of the following is the type of risk that only affects either a single firm or just a small number of firms?

Uptown Markets stock has a standard deviation of 16.8 percent and a covariance with the market of .0178.The market has a standard deviation of 13.6 percent.What is the correlation of this stock with the market?

Which of the following correctly identifies the factors included in the Fama-French three-factor model?

The following portfolio has an expected return of _____ percent and a beta of _____.

Farm Tractors,Inc.,stock has a beta of 1.12 and an expected return of 12.8 percent.The risk-free rate is 3.84 percent.What is the market rate of return?

The amount of risk premium allocated to Security A is dependent upon which one of the following?

A stock has a standard deviation of 25.4 percent and a covariance with the market of .0160.The market has a standard deviation of 12.2 percent.What is the beta of this stock?

Stock A is a risky asset that has a beta of 1.4 and an expected return of 13.2 percent.Stock B is also a risky asset and has a beta of 1.25.The risk-free rate is 5.5 percent.Assuming both stocks are correctly priced,what is the expected return on stock B?

Which one of the following measures systematic risk?

Stock X has a beta of .95 and an expected return of 10.8 percent.Stock Y has a beta of 1.2 and an expected return of 13.1 percent.What is the risk-free rate of return assuming that both stock X and stock Y are correctly priced?

A stock has an expected return of 14.59 percent and a beta of 1.35.What is the risk-free rate if the market rate is 12.7 percent?

Which one of the following stocks has the highest expected risk premium?

According to the systematic risk principle,the reward for bearing risk is based on which one of the following types of risk?

A portfolio of securities has a beta of 1.14.Given this,you know that:

Which one of the following is expressed as "E(RM)- Rf"?

A risky asset has a beta of .90 and an expected return of 7.4 percent.What is the reward-to-risk ratio if the risk-free rate is 2.69 percent?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

The following portfolio has an expected return of _ percent and a beta of _.

Which one of the following is expressed as "E(R_M)- R_f"?