Exam 10: Estimating Risk and Return

You hold the positions in the following table.What is the beta of your portfolio? If you expect the market to earn 12 percent and the risk-free rate is 3.5 percent,what is the required return of the portfolio?

Which of these is the measurement of risk for a collection of stocks for an investor?

You own $5,000 of Software Corp's stock that has a beta of 3.75.You also own $10,000 of Home Improvement Corp.(beta = 1.5)and $15,000 of Publishing Corp.(beta = 0.35).Assume that the market return will be 13 percent and the risk-free rate is 4.5 percent.What is the risk premium of the portfolio?

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?

ABC Inc.has a dividend yield equal to 3 percent and is expected to grow at a 7 percent rate for the next seven years.What is ABC's required return?

Praxair's upcoming dividend is expected to be $2.25 and its stock is selling at $65.The firm has a beta of 0.8 and is expected to grow at 10 percent for the foreseeable future.Compute Praxair's required return using both CAPM and the constant growth model.Assume that the market portfolio will earn 10 percent and the risk-free rate is 3 percent.

Which of the following is NOT a necessary condition for an efficient market?

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

Compute the standard deviation given these four economic states,their likelihoods,and the potential returns:

Which of these is a theory that describes the types of information that are reflected in current stock prices?

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?

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

How might a large market risk premium impact people's desire to buy stocks?

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

Which of these is the line on a graph of return and risk (standard deviation)from the risk-free rate through the market portfolio?

You hold the positions in the following table.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?

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?

You own $10,000 of Denny's Corp.stock that has a beta of 3.2.You also own $15,000 of Qwest Communications (beta = 1.9)and $15,000 of Southwest Airlines (beta = 0.4).Assume that the market return will be 13 percent and the risk-free rate is 5.5 percent.What is the risk premium of the portfolio?

A manager believes his firm will earn a 7.5 percent return next year.His firm has a beta of 2,the expected return on the market is 5 percent,and the risk-free rate is 2 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.

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