Exam 10: Estimating Risk and Return

Portfolio Beta 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?

Portfolio Beta You hold the positions in the following table.What is the beta of your portfolio?

A stock has an expected return of 14.5 percent,the risk-free rate is 4 percent and the return on the market is 11 percent.What is this stock's beta?

All of the following are necessary conditions for an efficient market EXCEPT:

Expected Return Compute the expected return given these three economic states,their likelihoods,and the potential returns:

Explain insider trading.

Expected Return A company's current stock price is $84.50 and it is likely to pay a $3.50 dividend next year.Since analysts estimate the company will have a 10 percent growth rate,what is its expected return?

Portfolio Beta and Required Return You hold the positions in the following table.What is the beta of your portfolio? If you expect the market to earn 14 percent and the risk-free rate is 5 percent,what is the required return of the portfolio?

Which of the following is a true statement?

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

Land O Lakes Systems has a beta of 1.66.Does this mean that you should expect Land O Lakes to earn a return 88 percent higher than the S&P 500 Index return? Explain.

Stock A has a required return of 12 percent.Stock B has a required return of 15 percent.Assume a risk-free rate of 4.75 percent.Which of the following is a correct statement about the two stocks?

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?

Universal Forest's current stock price is $154.00 and it is likely to pay a $5.23 dividend next year.Since analysts estimate Universal Forest will have a 13.0 percent growth rate,what is its required return?

CAPM Required Return 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?

The study of the cognitive processes and biases associated with making financial and economic decisions is known as:

Risk Premium The annual return on the S&P 500 Index was 18.1 percent.The annual T-bill yield during the same period was 6.2 percent.What was the market risk premium during that year?

Consider an asset that provides the same return no matter what economic state occurs.What would be the standard deviation of this asset?

In 2000,the S&P 500 Index earned 11 percent while the T-bill yield was 4.4 percent.Given this information,which of the following statements is correct with respect to the market risk premium?

Required Return If the risk-free rate is 8 percent and the market risk premium is 2 percent,what is the required return for the market?