Question 1

On average,the market rewards assuming additional systematic risk with additional returns.

Accepted Answer

A) True 
 B)False

Question 2

You are thinking about purchasing 1,000 shares of stock in the following firms:
Number of Shares Firm's Beta
Firm A 100 0.75
Firm B 200 1.47
Firm C 200 0.82
Firm D 600 1.60
If you purchase the number of shares specified,then the beta of your portfolio will be:

Accepted Answer

A) 1.16. 
B) 1.35. 
C) 1.00. 
D) Cannot be determined without knowing the stock prices. 
A) 1.16. 
B) 1.35. 
C) 1.00. 
D) Cannot be determined without knowing the stock prices.

Question 3

Use the following information to answer the following question(s).
Beta
Market 1
Firm A 1.25
Firm B 0.6
Market Return 10% Risk Free Rate 2%
-The market risk premium is

Accepted Answer

A) 2%. 
B) 4%. 
C) 6%. 
D) 8%. 
A) 2%. 
B) 4%. 
C) 6%. 
D) 8%.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

The market risk premium is measured by

Accepted Answer

A) beta. 
B) market return less risk-free rate. 
C) T-bill rate. 
D) standard deviation. 
A) beta. 
B) market return less risk-free rate. 
C) T-bill rate. 
D) standard deviation.

Question 6

Use the following information to answer the following question(s).
Beta
Market 1
Firm A 1.25
Firm B 0.6
Market Return 10% Risk Free Rate 2%
-Firm A's risk premium is

Accepted Answer

A) 4%. 
B) 6%. 
C) 8%. 
D) 10%. 
A) 4%. 
B) 6%. 
C) 8%. 
D) 10%.

Question 7

When constructing a portfolio,it is a good idea to put all your eggs in one basket,then watch the basket closely.

Accepted Answer

A) True 
 B)False

Question 8

The capital asset pricing model

Accepted Answer

A) provides a risk-return trade-off in which risk is measured in terms of the market returns. 
B) provides a risk-return trade-off in which risk is measured in terms of beta. 
C) measures risk as the correlation coefficient between a security and market rates of return. 
D) depicts the total risk of a security. 
A) provides a risk-return trade-off in which risk is measured in terms of the market returns. 
B) provides a risk-return trade-off in which risk is measured in terms of beta. 
C) measures risk as the correlation coefficient between a security and market rates of return. 
D) depicts the total risk of a security.

Question 9

If you hold a portfolio made up of the following stocks:
Investment Value Beta
Stock A $2,000 1.5
Stock B $5,000 1.2
Stock C $3,000 .8
What is the beta of the portfolio?

Accepted Answer

A) 1.17 
B) 1.14 
C) 1.32 
D) Can't be determined from information given 
A) 1.17 
B) 1.14 
C) 1.32 
D) Can't be determined from information given

Question 10

Portfolio returns can be calculated as the geometric mean of the returns on the individual assets in the portfolio.

Accepted Answer

A) True 
 B)False

Question 11

If investors became more risk averse The SML would shift downward and the slope of the SML would fall.

Accepted Answer

A) True 
 B)False

Question 12

You are considering investing in a portfolio consisting of 40% Electric General and 60% Buckstar.If the expected rate of return on Electric General is 16% and the expected return on Buckstar is 9%,what is the expected return on the portfolio?

Accepted Answer

A) 12.50% 
B) 13.20% 
C) 11.80% 
D) 10.00% 
A) 12.50% 
B) 13.20% 
C) 11.80% 
D) 10.00%

Question 13

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.

Accepted Answer

A) 4% 
B) 5% 
C) 6% 
D) 7% 
A) 4% 
B) 5% 
C) 6% 
D) 7%

Question 14

Adequate portfolio diversification can be achieved by investing in several companies in the same industry.

Accepted Answer

A) True 
 B)False

Question 15

Use the following information to answer the following question(s).
Beta
Market 1
Firm A 1.25
Firm B 0.6
Market Return 10% Risk Free Rate 2%
-Firm B's risk premium is

Accepted Answer

A) 2.66%. 
B) 4.8%. 
C) 6.3%. 
D) 8.1%. 
A) 2.66%. 
B) 4.8%. 
C) 6.3%. 
D) 8.1%.

Question 16

Hefty stock has a beta of 1.2.If the risk-free rate is 7% and the market risk premium is 6.5%,what is the required rate of return on Hefty?

Accepted Answer

A) 14.8% 
B) 14.4% 
C) 12.4% 
D) 13.5% 
A) 14.8% 
B) 14.4% 
C) 12.4% 
D) 13.5%

Question 17

The appropriate measure for risk according to the capital asset pricing model is

Accepted Answer

A) the standard deviation of a firm's cash flows. 
B) alpha. 
C) beta. 
D) probability of correlation. 
A) the standard deviation of a firm's cash flows. 
B) alpha. 
C) beta. 
D) probability of correlation.

Question 18

Unsystematic risk can be eliminated through diversification.

Accepted Answer

A) True 
 B)False

Question 19

You are thinking of adding one of two investments to an already well diversified portfolio.
Security A Security B
Expected return = 12% Expected return = 12%
Standard deviation of returns = 20.9% Standard deviation of returns = 10.1%
Beta = .8 Beta = 2
If you are a risk-averse investor

Accepted Answer

A) security A is the better choice. 
B) security B is the better choice. 
C) either security would be acceptable. 
D) cannot be determined with information given. 
A) security A is the better choice. 
B) security B is the better choice. 
C) either security would be acceptable. 
D) cannot be determined with information given.

Question 20

Given the capital asset pricing model,a security with a beta of 1.5 should return ________,if the risk-free rate is 3% and the market return is 11%.

Accepted Answer

A) 16.5% 
B) 14.0% 
C) 14.5% 
D) 15.0% 
A) 16.5% 
B) 14.0% 
C) 14.5% 
D) 15.0%

On average,the market rewards assuming additional systematic risk with additional returns.

You are thinking about purchasing 1,000 shares of stock in the following firms: Number of Shares Firm's Beta Firm A 100 0.75 Firm B 200 1.47 Firm C 200 0.82 Firm D 600 1.60 If you purchase the number of shares specified,then the beta of your portfolio will be:

Use the following information to answer the following question(s). Beta Market 1 Firm A 1.25 Firm B 0.6 Market Return 10% Risk Free Rate 2% -The market risk premium is

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

The market risk premium is measured by

Use the following information to answer the following question(s). Beta Market 1 Firm A 1.25 Firm B 0.6 Market Return 10% Risk Free Rate 2% -Firm A's risk premium is

When constructing a portfolio,it is a good idea to put all your eggs in one basket,then watch the basket closely.

The capital asset pricing model

If you hold a portfolio made up of the following stocks: Investment Value Beta Stock A $2,000 1.5 Stock B $5,000 1.2 Stock C $3,000 .8 What is the beta of the portfolio?

Portfolio returns can be calculated as the geometric mean of the returns on the individual assets in the portfolio.

If investors became more risk averse The SML would shift downward and the slope of the SML would fall.

You are considering investing in a portfolio consisting of 40% Electric General and 60% Buckstar.If the expected rate of return on Electric General is 16% and the expected return on Buckstar is 9%,what is the expected return on the portfolio?

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.

Adequate portfolio diversification can be achieved by investing in several companies in the same industry.

Use the following information to answer the following question(s). Beta Market 1 Firm A 1.25 Firm B 0.6 Market Return 10% Risk Free Rate 2% -Firm B's risk premium is

Hefty stock has a beta of 1.2.If the risk-free rate is 7% and the market risk premium is 6.5%,what is the required rate of return on Hefty?

The appropriate measure for risk according to the capital asset pricing model is

Unsystematic risk can be eliminated through diversification.

You are thinking of adding one of two investments to an already well diversified portfolio. Security A Security B Expected return = 12% Expected return = 12% Standard deviation of returns = 20.9% Standard deviation of returns = 10.1% Beta = .8 Beta = 2 If you are a risk-averse investor

Given the capital asset pricing model,a security with a beta of 1.5 should return ________,if the risk-free rate is 3% and the market return is 11%.

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements,taxes,and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters

Exam 8: Risk and Return-Capital Market Theory

On average,the market rewards assuming additional systematic risk with additional returns.

You are thinking about purchasing 1,000 shares of stock in the following firms: Number of Shares Firm's Beta Firm A 100 0.75 Firm B 200 1.47 Firm C 200 0.82 Firm D 600 1.60 If you purchase the number of shares specified,then the beta of your portfolio will be:

Use the following information to answer the following question(s). Beta Market 1 Firm A 1.25 Firm B 0.6 Market Return 10% Risk Free Rate 2% -The market risk premium is

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

The market risk premium is measured by

Use the following information to answer the following question(s). Beta Market 1 Firm A 1.25 Firm B 0.6 Market Return 10% Risk Free Rate 2% -Firm A's risk premium is

When constructing a portfolio,it is a good idea to put all your eggs in one basket,then watch the basket closely.

The capital asset pricing model

If you hold a portfolio made up of the following stocks: Investment Value Beta Stock A $2,000 1.5 Stock B $5,000 1.2 Stock C $3,000 .8 What is the beta of the portfolio?

Portfolio returns can be calculated as the geometric mean of the returns on the individual assets in the portfolio.

If investors became more risk averse The SML would shift downward and the slope of the SML would fall.

You are considering investing in a portfolio consisting of 40% Electric General and 60% Buckstar.If the expected rate of return on Electric General is 16% and the expected return on Buckstar is 9%,what is the expected return on the portfolio?

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.

Adequate portfolio diversification can be achieved by investing in several companies in the same industry.

Use the following information to answer the following question(s). Beta Market 1 Firm A 1.25 Firm B 0.6 Market Return 10% Risk Free Rate 2% -Firm B's risk premium is

Hefty stock has a beta of 1.2.If the risk-free rate is 7% and the market risk premium is 6.5%,what is the required rate of return on Hefty?

The appropriate measure for risk according to the capital asset pricing model is

Unsystematic risk can be eliminated through diversification.

You are thinking of adding one of two investments to an already well diversified portfolio. Security A Security B Expected return = 12% Expected return = 12% Standard deviation of returns = 20.9% Standard deviation of returns = 10.1% Beta = .8 Beta = 2 If you are a risk-averse investor

Given the capital asset pricing model,a security with a beta of 1.5 should return ________,if the risk-free rate is 3% and the market return is 11%.

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements,taxes,and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters