Exam 8: Risk and Return-Capital Market Theory

Security A has an expected rate of return of 22% and a beta of 2.5.Security B has a beta of 1.20.If the Treasury bill rate is 10%,what is the expected rate of return for security B?

Beta is a statistical measure of:

U.S.Treasury bonds currently yield 6%.Consolidated Industries stock has a beta of 1.5.The rate of return on the S&P 500 is presently 18%.What is the rate of return that Consolidated Industries stockholders require?

By investing in different securities,an investor can lower his exposure to risk.

Total risk equals unique security risk times systematic risk.

The Elvis Alive Corporation,makers of Elvis memorabilia,has a beta of 2.35.The return on the market portfolio is 13%,and the risk-free rate is 7%.According to CAPM,what is the risk premium on a stock with a beta of 1.0?

Sterling Incorporated has a beta of 1.0.If the expected return on the market is 12%,what is the expected return on Sterling Incorporated's stock?

You bought Chemtron stock for $45 a year ago.It is selling for $54 today.What is your holding period return?

Investing in foreign stocks is one way to improve diversification of a portfolio.

The return for the market during the next period is expected to be 16%;the risk-free rate is 10%.Calculate the required rate of return for a stock with a beta of 1.5.

If investors expected inflation to increase in the future,what would happen to the security market line (SML)?

The risk-free rate is currently 6.5%.Acid Battery Company stockholders require a rate of return of 27.5%,and the stock has a beta of 2.1.What is the current market risk premium?

Changes in the general economy,such as changes in interest rates or tax laws,represent what type of risk?

Unsystematic risk can be eliminated through diversification.

Given the capital asset pricing model,a security with a beta of 1.5 should return ________,if the risk-free rate is 6% and the market return is 11%.

You have been employed by Telemetry Medical Instruments (TMI)for seven years and participate in their 401 (k)plan by having 5% of your paycheck invested in the plan.You have been so impressed with the performance of the company's stock that you currently have all of your 401 (k)money invested in TMI's common stock.What does prudent investment management suggest that you do about risk?

Which of the following statements is true?

You hold a portfolio with the following securities: Compute the expected return and beta for the portfolio.

Which of the following statements is correct?

The rate of return on the S&P 500 is 16.2%.Epsilon has a beta of 1.85.If the T-bond rate is 5.9%,what should investors expect as a rate of return on Epsilon's stock?