Exam 11: Risk and Rates of Return

Berg Inc.has just paid a dividend of $2.00.Its stock is now selling for $48 per share.The firm is half as risky as the market.The expected return on the market is 14 percent, and the yield on U.S.Treasury bonds is 11 percent.If the market is in equilibrium, what rate of growth is expected?

Here are the expected returns on two stocks: If you form a 50−50 portfolio of the two stocks, what is the portfolio's standard deviation?

When comparing two stocks with the same standard deviation but the different expected returns, you must compute the coefficient of variation to determine which stock is preferred.

You are an investor in common stock, and you currently hold a well-diversified portfolio which has an expected return of 12 percent, a beta of 1.2, and a total value of $9,000.You plan to increase your portfolio by buying 100 shares of AT&E at $10 a share.AT&E has an expected return of 20 percent with a beta of 2.0.What will be the expected return and the beta of your portfolio after you purchase the new stock?

Which of the following statements is most correct?

Which of the following statements is correct?

Given the following information, determine which beta coefficient for Stock A is consistent with equilibrium:r_s = 11.3%; r_RF = 5%; r_M = 10%

Risk averse investors require ____ rates of return for investments with ____ risk.

Investment risk can be measured by the variability of all the investment's returns, both "good" and "bad."

You hold a diversified portfolio consisting of a $5,000 investment in each of 20 different common stocks.The portfolio beta is equal to 1.15.You have decided to sell one of your stocks, a lead mining stock whose β = 1.0, for $5,000 net and to use the proceeds to buy $5,000 of stock in a steel company whose β = 2.0.What will be the new beta of the portfolio?

The only condition under which risk can be reduced to zero is to find securities that are perfectly negatively correlated (ρ = −1.0) with each other.

Which of the following statements is correct?

Which of the following statements is correct?

Which of the following statements is most correct?

The risk and return characteristics of an investment should not be evaluated in isolation; instead, the risk return and return of an individual security should be analyzed in terms of how that security affects the risk and return of the portfolio in which it is held.

We will generally find that the beta of a diversified portfolio is more stable over time than the beta of a single security.

Which of the following is not a difficulty concerning beta and its estimation?

For markets to be in equilibrium, that is, for there to be no strong pressure for prices to depart from their current levels,

Given the following probability distributions, what are the expected returns for the Market and for Security J?

In a market dominated by risk-averse investors, riskier securities must have higher expected returns, as estimated by the average investor, than less risky securities.