Question 1

A stock with which one of the following betas has an expected return that most resembles the overall market expected rate of return?

Accepted Answer

A) .33 
B) .74 
C) .99 
D) 1.06 
E) 1.22 
A) .33 
B) .74 
C) .99 
D) 1.06 
E) 1.22

Question 2

A security has a zero covariance with the market.This means that:

Accepted Answer

A) the return on the security is always equal to that of the market. 
B) the return on the security moves in the same direction as the market return. 
C) the security is a risk-free security. 
D) there is no identifiable relationship between the return on the security and that of the market. 
E) the return on the security must vary more than that of the market. 
A) the return on the security is always equal to that of the market. 
B) the return on the security moves in the same direction as the market return. 
C) the security is a risk-free security. 
D) there is no identifiable relationship between the return on the security and that of the market. 
E) the return on the security must vary more than that of the market.

Question 3

Which of the following are needed to compute the beta of an individual security?
I.average return on the market for the period
II.standard deviation of the security and the market
III.returns on the security and the market for multiple time periods
IV.correlation of the security to the market

Accepted Answer

A) I and III only 
B) I and IV only 
C) II and III only 
D) II and IV only 
E) I, II, and III only 
A) I and III only 
B) I and IV only 
C) II and III only 
D) II and IV only 
E) I, II, and III only

Question 4

All else held constant,which of the following will increase the expected return on a security based on CAPM? Assume the market return exceeds the risk-free rate and both values are positive.Also assume the beta exceeds 1.0.
I.decrease in the security beta
II.increase in the market risk premium
III.decrease in the risk-free rate
IV.increase in the market rate of return

Accepted Answer

A) I and III only 
B) II and IV only 
C) I, II, and IV only 
D) II, III, and IV only 
E) I, II, III, and IV 
A) I and III only 
B) II and IV only 
C) I, II, and IV only 
D) II, III, and IV only 
E) I, II, III, and IV

A stock with which one of the following betas has an expected return that most resembles the overall market expected rate of return?

A security has a zero covariance with the market.This means that:

Which of the following are needed to compute the beta of an individual security? I.average return on the market for the period II.standard deviation of the security and the market III.returns on the security and the market for multiple time periods IV.correlation of the security to the market

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

A stock with which one of the following betas has an expected return that most resembles the overall market expected rate of return?

A security has a zero covariance with the market.This means that:

Which of the following are needed to compute the beta of an individual security? I.average return on the market for the period II.standard deviation of the security and the market III.returns on the security and the market for multiple time periods IV.correlation of the security to the market

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