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Exam 8: Risk and Return - Capital Market Theory

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Question 31

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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?

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

E) A) and B)
F) All of the above

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Question 32

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

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

E) C) and D)
F) A) and D)

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Question 33

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

The security market line (SML) relates risk to return,for a given set of market conditions.If risk aversion increases,which of the following would most likely occur?

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.

The Elvis Alive Corporation,makers of Elvis memorabilia,has a beta of 2.35.The return on the market portfolio is 12%,and the risk-free rate is 2.5%.According to CAPM,what is the risk premium on a share with a beta of 1.0?

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

You are thinking about purchasing 1,000 shares 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:

The return for the market during the next period is expected to be 11.5%;the risk-free rate is 2.5%.Calculate the required rate of return for a share with a beta of 1.5.

A portfolio containing a mix of stocks,bonds,and real estate is likely to be more diversified than a portfolio made up of only one asset class.

Long-term bonds issued by large,established corporations are commonly used to estimate the risk-free rate.

Which of the following is generally used to measure the market when calculating betas?

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

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

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

When constructing a portfolio,it is a good idea to concentrate in one or two securities,and then monitor the performance closely.

The portfolio standard deviation will always be less than the standard deviation of any asset in the portfolio.

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%.

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

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