Exam 8: Risk and Return-Capital Market Theory

The market (systematic)risk associated with an individual stock is most closely identified with the

The risk-return relationship for each financial asset is shown on

Use the following information,which describes the expected return and standard deviation for three different assets,to answer the following question(s). Portfolio X Portfolio Y Portfolio Z Expected return 9.5% 8.8% 9.5% Standard deviation 4.9% 5.5% 5.5% -A negative coefficient of correlation implies that

A portfolio will always have less risk than the riskiest asset in it if the correlation of assets is less than perfectly positive.

Bell Weather,Inc.has a beta of 1.25.The return on the market portfolio is 12.5%,and the risk-free rate is 5%.According to CAPM,what is the required return on this stock?

Use the following information,which describes the possible outcomes from investing in a particular asset,to answer the following question(s). State of the Economy Probability of the States Percentage Returns Economic recession 25% 5% Moderate economic growth 55% 10% Strong economic growth 20% 13% -What is the expected rate of return on a portfolio 18% of which is invested in an S&P 500 Index fund,65% in a technology fund,and 17% in Treasury Bills.The expected rate of return is 11% on the S&P Index fund,14% on the technology fund and 2% on the Treasury Bills.

You are considering a portfolio consisting of equal investments in the stocks Northbank Inc.and Tropical Escapes Inc.Returns on the 2 stocks under various conditions are shown below. Scenario Return (%)Return % Return % Probability Northbank Tropical Portfolio 0.20 4% 16% 0.50 10% 10% 0.30 20% -10% Calculate the expected rate of and the standard deviation return of the portfolio.

The benefit from diversification is far greater when the diversification occurs across asset types.

The expected return on the market portfolio is currently 11%.Battmobile Corporation stockholders require a rate of return of 23.0%,and the stock has a beta of 2.5.According to CAPM,determine the risk-free rate.

Which of the following is a good measure of the relationship between an investment's returns and the market's returns?

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

The security market line (SML)intercepts the Y axis at the risk-free rate.

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

The expected return on MSFT next year is 12% with a standard deviation of 20%.The expected return on AAPL next year is 24% with a standard deviation of 30%.The correlation between the two stocks is .6.If James makes equal investments in MSFT and AAPL,what is the expected return on his portfolio.

The expected return on MSFT next year is 12% with a standard deviation of 20%.The expected return on AAPL next year is 24% with a standard deviation of 30%.If James makes equal investments in MSFT and AAPL,what is the expected return on his portfolio.

The S&P 500 Index is commonly used to estimate the market rate of return.

Siebling Manufacturing Company's common stock has a beta of .8.If the expected risk-free return is 2% and the market offers a premium of 8% over the risk-free rate,what is the expected return on Siebling's common stock?

Which of the following portfolios is clearly preferred to the others? Expected Standard Return Deviation A 14% 12% B 22% 20% C 18% 16%

Use the following information,which describes the expected return and standard deviation for three different assets,to answer the following question(s). Portfolio X Portfolio Y Portfolio Z Expected return 9.5% 8.8% 9.5% Standard deviation 4.9% 5.5% 5.5% -An investor will get maximum risk reduction by combining assets that are

Use the following information,which describes the possible outcomes from investing in a particular asset,to answer the following question(s). State of the Economy Probability of the States Percentage Returns Economic recession 25% 5% Moderate economic growth 55% 10% Strong economic growth 20% 13% -The expected return from investing in the asset is