Exam 8: Risk and Return-Capital Market Theory

The return on the market portfolio is currently 13%.Battmobile Corporation stockholders require a rate of return of 21%,and the stock has a beta of 3.5.According to CAPM,determine the risk-free rate.

The greater the dispersion of possible returns,the riskier is the investment.

What is the standard deviation of an investment that has the following expected scenario? If there is an 18% probability of a recession,2.0% return;if there is a 65% probability of a moderate economy,9.5% return;if there is a 17% probability of a strong economy,14.2% return.

You are thinking about purchasing 1,000 shares of stock in the following firms: If you purchase the number of shares specified,then the beta of your portfolio will be:

Which of the following is NOT an example of systematic risk?

If there is a 20% chance we will get a 16% return,a 30% chance of getting a 14% return,a 40% chance of getting a 12% return,and a 10% chance of getting an 8% return,what is the expected rate of return?

You are considering investing in U.S.Steel.Which of the following is an example of nondiversifiable risk?

AA & Co.has a beta of .656.If the expected market return is 13.2% and the risk-free rate is 5.7%,what is the appropriate required return of AA & Co.using the CAPM model?

Siebling Manufacturing Company's common stock has a beta of .8.If the expected risk-free return is 7% and the market offers a premium of 8% over the risk-free rate,what is the expected return on Siebling's common stock?

For the most part,there has been a positive relation between risk and return historically.

Asset A has a required return of 18% and a beta of 1.4.The expected market return is 14%.What is the risk-free rate? Plot the security market line.

Huit Industries' common stock has an expected return of 14.4% and a beta of 1.2.If the expected risk-free return is 8%,what is the expected return for the market (round your answer to the nearest .1%)?

Which of the following investments is clearly preferred to the others?

The CAPM designates the risk-return tradeoff existing in the market,where risk is defined in terms of beta.

According to the experts,a model portfolio should consist of a mix of securities that over the long run should look something like this: cash or money market accounts,5%;bonds,25%;domestic stocks,35%;international stocks,35%.What is the determination of the proportions of various securities within a portfolio referred to as?

The capital asset pricing model:

A stock with a beta of 1.0 would earn the risk-free rate.

A stock with a beta greater than 1.0 has lower nondiversifiable risk than a stock with a beta of 1.0.

If there is a 20% chance we will get a 16% return,a 30% chance of getting a 14% return,a 40% chance of getting a 12% return,and a 10% chance of getting an 8% return,what would be the standard deviation?

Marjen stock has a required return of 20%.The expected market return is 15%,and the beta of Marjen's stock is 1.5.Calculate the risk-free rate.