A) the probability of achieving a return that is greater than what was expected. B) the probability of achieving a beta coefficient that is less than what was expected. C) the probability of achieving a return that is less than what was expected. D) the probability of achieving a standard deviation that is less than what was expected. A) the probability of achieving a return that is greater than what was expected. B) the probability of achieving a beta coefficient that is less than what was expected. C) the probability of achieving a return that is less than what was expected. D) the probability of achieving a standard deviation that is less than what was expected.

Exam 8: Risk and Return-Capital Market Theory

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% a. Calculate the expected rate of and the standard deviation return of the portfolio.

(Essay)

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Question 61

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

(Multiple Choice)

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Question 62

Your portfolio consists of $3,000 in ABC stock, $4,500 of DEF stock and $2,500 of GHI stock. Expected rates of return are ABC 5%, DEF 12%, and GHI 16%. What is the portfolio expected rate of return?

(Multiple Choice)

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Question 63

What type of risk can investors reduce through diversification?

(Multiple Choice)

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Question 64

The rate on six-month T-bills is currently 5%. Andvark Company stock has a beta of 1.69 and a required rate of return of 15.4%. According to CAPM, determine the return on the market portfolio.

(Multiple Choice)

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Question 65

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

(True/False)

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Question 66

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

(Multiple Choice)

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Question 67

Investment risk is

(Multiple Choice)

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Question 68

An asset with a large standard deviation of returns can lower portfolio risk if its returns are uncorrelated with the returns on the other assets in the portfolio.

(True/False)

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Question 69

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

(True/False)

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Question 70

In a perfectly efficient market, all assets would plot on the Security Market Line.

(True/False)

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Question 71

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

(True/False)

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Question 72

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.

(Multiple Choice)

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Question 73

U. S. Treasury bills can be used to approximate the risk-free rate.

(True/False)

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Question 74

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

(True/False)

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Question 75

A security with a beta of zero has a required rate of return equal to the overall market rate of return.

(True/False)

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Question 76

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

(Multiple Choice)

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Question 77

Your broker mailed you your year-end statement. You have $25,000 invested in Amazon, $18,000 tied up in Boeing, $36,000 in Caterpillar stock, and $11,000 in DuPont. The betas for each of your stocks are 1.43 for Amazon, .79 for Boeing, 1.37 for Caterpillar, and 1.71 for DuPont. What is the beta of your portfolio?

(Multiple Choice)

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Question 78

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 2.0%, what is the expected rate of return for security B?

(Essay)

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Question 79

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.

(Essay)

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Question 80

Showing 61 - 80 of 102

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

Your portfolio consists of $3,000 in ABC stock, $4,500 of DEF stock and $2,500 of GHI stock. Expected rates of return are ABC 5%, DEF 12%, and GHI 16%. What is the portfolio expected rate of return?

What type of risk can investors reduce through diversification?

The rate on six-month T-bills is currently 5%. Andvark Company stock has a beta of 1.69 and a required rate of return of 15.4%. According to CAPM, determine the return on the market portfolio.

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

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

Investment risk is

An asset with a large standard deviation of returns can lower portfolio risk if its returns are uncorrelated with the returns on the other assets in the portfolio.

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

In a perfectly efficient market, all assets would plot on the Security Market Line.

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

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.

U. S. Treasury bills can be used to approximate the risk-free rate.

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

A security with a beta of zero has a required rate of return equal to the overall market rate of return.

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

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 2.0%, what is the expected rate of return for security B?

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.

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

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