Exam 11: Systematic Risk and the Equity Risk Premium

Your investment portfolio contains 200 shares of RBC and 450 shares of Air Canada.The price of RBC is currently $92 per share,and the price of Air Canada is currently $11 per share.If you expect the return on RBC to be 6% in the next year,and the return on Air Canada to be 8%,what is the expected return for your portfolio?

Loblaw's stock has a beta of 0.9,while Bombardier stock has a beta of 1.35.If the risk-free rate is 2%,and the market risk premium is 8%,what is the expected return on a portfolio with equal holdings of Loblaw's and Bombardier?

What is the lowest risk possible by selecting two stocks that are perfectly negatively correlated?

CIBC stock has a beta of 1.2.If the risk-free rate is 1.8%,and the market risk premium is 6.5%,what is the expected return of CIBC stock,according to the CAPM?

Blackberry stock has a beta of 1.7.If the risk-free rate is 2.1%,and the market risk premium is 7%,what is the expected return of Blackberry stock,according to the CAPM?

We can reduce volatility by investing in less than perfectly correlated assets through diversification because the expected return of a portfolio is the weighted average of the expected returns of its stocks,but the volatility of a portfolio:

A portfolio has three stocks - 200 shares of Yahoo (YHOO),100 Shares of General Motors (GM),and 50 shares of Standard and Poor's Index Fund (SPY).If the price of YHOO is $30,the price of GM is $30,and the price of SPY is $130,calculate the portfolio weight of YHOO and GM.

Use the table for the question(s)below. Consider the following expected returns,volatilities,and correlations: -The expected return of a portfolio that is equally invested in Duke Energy and Microsoft is closest to:

Suppose over the next year Ball has a return of 12.5%,Lowes has a return of 20%,and Abbott Labs has a return of -10%.The return on your portfolio over the year is:

Use the table for the question(s)below. Consider the following expected returns,volatilities,and correlations: -The volatility of a portfolio that is equally invested in Duke Energy and Microsoft is closest to:

When the returns of two stocks are perfectly positively correlated,then:

The security market line is a graph of the expected return of a stock as a function of systematic risk (beta).

Suppose over the next year Ball has a return of 12.5%,Lowes has a return of 20%,and Abbott Labs has a return of -10%.The value of your portfolio over the year is:

Air Canada stock has a standard deviation of 18%,while the market index standard deviation is 8%.If the correlation between Air Canada and the market index is 0.45,what is the beta of Air Canada stock?

Use the table for the question(s)below. Consider the following returns: -The volatility on Lowes' returns is closest to:

While we are using historic return to estimate a stock's beta,why can't we use historic data to forecast the expected return for the stock?

The volatility of Home Depot share prices is 30% and that of General Motors shares is 30%.When I hold both stocks in my portfolio,the overall volatility of the portfolio is:

Stocks that have a higher volatility will always have a higher beta.

A stock market comprises 2000 shares of stock A and 2000 shares of stock B.The share prices for stocks A and B are $20 and $10,respectively.What is the capitalization of the market portfolio?

As we add more uncorrelated stocks to a portfolio where the stocks are held in equal weights,the benefit of diversification is most dramatic: