Question 1

Which of the following statements is CORRECT?

Accepted Answer

A)   A portfolio that consists of 40 stocks that are not highly correlated with "the market" will probably be less risky than a portfolio of 40 stocks that are highly correlated with the market, assuming the stocks all have the same standard deviations.
B)   A two-stock portfolio will always have a lower beta than a one-stock portfolio.
C)   If portfolios are formed by randomly selecting stocks, a 10-stock portfolio will always have a lower beta than a one-stock portfolio.
D)   A stock with an above-average standard deviation must also have an above-average beta.
E)   A two-stock portfolio will always have a lower standard deviation than a one-stock portfolio.F) B) and C)
G) A) and B)

Question 2

Zacher Co.'s stock has a beta of 1.40,the risk-free rate is 4.25%,and the market risk premium is 5.50%.What is the firm's required rate of return?

Accepted Answer

A)   11.36%
B)   11.65%
C)   11.95%
D)   12.25%
E)   12.55%F) None of the above
G) B) and C)

Question 3

Any change in its beta is likely to affect the required rate of return on a stock,which implies that a change in beta will likely have an impact on the stock's price,other things held constant.

Accepted Answer

A) True 
 B)False

Question 4

If the price of money (e.g.,interest rates and equity capital costs)increases due to an increase in anticipated inflation,the risk-free rate will also increase.If there is no change in investors' risk aversion,then the market risk premium (rM -rRF)will remain constant.Also,if there is no change in stocks' betas,then the required rate of return on each stock as measured by the CAPM will increase by the same amount as the increase in expected inflation.

Accepted Answer

A) True 
 B)False

Question 5

Suppose Stan holds a portfolio consisting of a $10,000 investment in each of 8 different common stocks.The portfolio's beta is 1.25.Now suppose Stan decided to sell one of his stocks that has a beta of 1.00 and to use the proceeds to buy a replacement stock with a beta of 1.35.What would the portfolio's new beta be?

Accepted Answer

A)   1.17
B)   1.23
C)   1.29
D)   1.36
E)   1.43F) A) and E)
G) A) and D)

Question 6

Suppose that Federal Reserve actions have caused an increase in the risk-free rate,rRF.Meanwhile,investors are afraid of a recession,so the market risk premium, (rM -rRF) ,has increased.Under these conditions,with other things held constant,which of the following statements is most correct?

Accepted Answer

A)   The required return on all stocks would increase, but the increase would be greatest for stocks with betas of less than 1.0.
B)   Stocks' required returns would change, but so would expected returns, and the result would be no change in stocks' prices.
C)   The prices of all stocks would decline, but the decline would be greatest for high-beta stocks.
D)   The prices of all stocks would increase, but the increase would be greatest for high-beta stocks.
E)   The required return on all stocks would increase by the same amount.F) A) and B)
G) A) and C)

Exam 6: Risk and Return

Suppose that Federal Reserve actions have caused an increase in the risk-free rate,r_RF.Meanwhile,investors are afraid of a recession,so the market risk premium, (r_M -r_RF) ,has increased.Under these conditions,with other things held constant,which of the following statements is most correct?

Correct Answer
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Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
verified

Zacher Co.'s stock has a beta of 1.40,the risk-free rate is 4.25%,and the market risk premium is 5.50%.What is the firm's required rate of return?

Correct Answer
verified

Correct Answer
verified

Any change in its beta is likely to affect the required rate of return on a stock,which implies that a change in beta will likely have an impact on the stock's price,other things held constant.

Correct Answer
verified

Exam 6: Risk and Return

Suppose that Federal Reserve actions have caused an increase in the risk-free rate,rRF.Meanwhile,investors are afraid of a recession,so the market risk premium, (rM -rRF) ,has increased.Under these conditions,with other things held constant,which of the following statements is most correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Zacher Co.'s stock has a beta of 1.40,the risk-free rate is 4.25%,and the market risk premium is 5.50%.What is the firm's required rate of return?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Any change in its beta is likely to affect the required rate of return on a stock,which implies that a change in beta will likely have an impact on the stock's price,other things held constant.

Correct AnswerverifiedShow Answer

Suppose that Federal Reserve actions have caused an increase in the risk-free rate,r_RF.Meanwhile,investors are afraid of a recession,so the market risk premium, (r_M -r_RF) ,has increased.Under these conditions,with other things held constant,which of the following statements is most correct?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified