FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 6: Risk and Return

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 41

Multiple Choice

Review LaterAdd Note

Review Later

Returns for the Dayton Company over the last 3 years are shown below.What's the standard deviation of the firm's returns? (Hint: This is a sample, not a complete population, so the sample standard deviation formula should be used.) Year Return 2011 21% 2010 -12.50% 2009 25%

A) 20.08%
B) 20.59%
C) 21.11%
D) 21.64%
E) 22.18%

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

Correct Answer

verified

Show Answer

Question 42

Multiple Choice

Review LaterAdd Note

Review Later

have the following data on three stocks: If you are a strict risk minimizer, you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.

A) A; A.
B) A; B.
C) B; A.
D) C; A.
E) C; B.

F) B) and C)
G) A) and B)

Correct Answer

verified

Show Answer

Question 43

True/False

Review LaterAdd Note

key conclusion of the Capital Asset Pricing Model is that the value of an asset should be measured by considering both the risk and the expected return of the asset, assuming that the asset is held in a well-diversified portfolio.The risk of the asset held in isolation is not relevant under the CAPM.

Which of the following statements is CORRECT?

stock's beta measures its diversifiable risk relative to the diversifiable risks of other firms.

Corp has a beta of 1.5 and is currently in equilibrium.The required rate of return on the stock is 12.00% versus a required return on an average stock of 10.00%.Now the required return on an average stock increases by 30.0% Neither betas nor the risk-free rate change.What would CCC's new required return be?

portfolio analysis, we often use ex post (historical) returns and standard deviations, despite the fact that we are really interested in ex ante (future) data.

"Risk aversion" implies that investors require higher expected returns on riskier than on less risky securities.

Assume that your uncle holds just one stock, East Coast Bank Both banks have had less variability than most other stocks over the past 5 years.Measured by the standard deviation of returns, by how much would your uncle's risk have been reduced if he had held a portfolio consisting of 60% in ECB and the remainder in WCB? (Hint: Use the sample standard deviation formula.)

Which of the following statements is CORRECT? (Assume that the risk-free rate is a constant.)

Mulherin's stock has a beta of 1.23, its required return is 11.75%, and the risk-free rate is 4.30%.What is the required rate of return on the market? (Hint: First find the market risk premium.)

Stocks A and B both have an expected return of 10% and a standard deviation of returns of 25%.Stock A has a beta of 0.8 and Stock B has a beta of 1.2.The correlation coefficient, r, between the two stocks is 0.6.Portfolio P has 50% invested in Stock A and 50% invested in B.Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Consider the following information for three stocks, A, B, and C.The stocks' returns are positively but not perfectly positively correlated with one another, i.e., the correlations are all between 0 and 1. Portfolio AB has half of its funds invested in Stock A and half in Stock B.Portfolio ABC has one third of its funds invested in each of the three stocks.The risk-free rate is 5%, and the market is in equilibrium, so required returns equal expected returns.Which of the following statements is CORRECT?

realized return on a stock portfolio is the weighted average of the expected returns on the stocks in the portfolio.

slope of the SML is determined by the value of beta.

you plotted the returns of a company against those of the market and found that the slope of your line was negative, the CAPM would indicate that the required rate of return on the stock should be less than the risk-free rate for a well-diversified investor, assuming that the observed relationship is expected to continue in the future.

is possible for a firm to have a positive beta, even if the correlation between its returns and those of another firm is negative.

Assume that the risk-free rate, rRF, increases but the market risk premium, (rM − rRF) , declines with the net effect being that the overall required return on the market, rM, remains constant.Which of the following statements is CORRECT?

firm can change its beta through managerial decisions, including capital budgeting and capital structure decisions.