Question 1

Which one of the following risks is irrelevant to a well-diversified investor?

Accepted Answer

A)  systematic risk
B)  unsystematic risk
C)  market risk
D)  nondiversifiable risk
E)  systematic portion of a surpriseF) C) and E)
G) A) and D)

Question 2

The expected return on JK stock is 15.78 percent while the expected return on the market is 11.34 percent.The stock's beta is 1.51.What is the risk-free rate of return?

Accepted Answer

A)  2.22 percent
B)  2.31 percent
C)  2.42 percent
D)  2.50 percent
E)  2.63 percentF) A) and B)
G) A) and C)

Question 3

Treynor Industries is investing in a new project.The minimum rate of return the firm requires on this project is referred to as the:

Accepted Answer

A)  average arithmetic return.
B)  expected return.
C)  market rate of return.
D)  internal rate of return.
E)  cost of capital.F) B) and C)
G) B) and D)

Question 4

What is the expected return on a portfolio comprised of $6,200 of stock M and $4,500 of stock N if the economy enjoys a boom period?

Accepted Answer

A)  10.93 percent
B)  11.16 percent
C)  12.55 percent
D)  12.78 percent
E)  13.69 percentF) All of the above
G) D) and E)

Question 5

Which one of the following statements is correct?

Accepted Answer

A)  The unexpected return is always negative.
B)  The expected return minus the unexpected return is equal to the total return.
C)  Over time, the average return is equal to the unexpected return.
D)  The expected return includes the surprise portion of news announcements.
E)  Over time, the average unexpected return will be zero.F) B) and D)
G) C) and D)

Question 6

What is the expected return on a portfolio that is equally weighted between stocks K and L given the following information?

Accepted Answer

A)  11.13 percent
B)  11.86 percent
C)  12.25 percent
D)  13.32 percent
E)  14.40 percentF) A) and B)
G) B) and E)

Question 7

You own a portfolio with the following expected returns given the various states of the economy.What is the overall portfolio expected return?

Accepted Answer

A)  6.49 percent
B)  8.64 percent
C)  8.87 percent
D)  9.86 percent
E)  10.23 percentF) None of the above
G) B) and E)

Question 8

A stock has an expected return of 11 percent, the risk-free rate is 5.2 percent, and the market risk premium is 5 percent.What is the stock's beta?

Accepted Answer

A)  1.08
B)  1.16
C)  1.29
D)  1.32
E)  1.35F) A) and C)
G) A) and B)

Question 9

Unsystematic risk:

Accepted Answer

A)  can be effectively eliminated by portfolio diversification.
B)  is compensated for by the risk premium.
C)  is measured by beta.
D)  is measured by standard deviation.
E)  is related to the overall economy.F) A) and C)
G) B) and C)

Question 10

Steve has invested in twelve different stocks that have a combined value today of $121,300.Fifteen percent of that total is invested in Wise Man Foods.The 15 percent is a measure of which one of the following?

Accepted Answer

A)  portfolio return
B)  portfolio weight
C)  degree of risk
D)  price-earnings ratio
E)  index valueF) B) and C)
G) All of the above

Question 11

At a minimum, which of the following would you need to know to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset?
I.asset's standard deviation
II.asset's beta
III.risk-free rate of return
IV.market risk premium

Accepted Answer

A)  I and III only
B)  II and IV only
C)  III and IV only
D)  I, III, and IV only
E)  I, II, III, and IVF) A) and B)
G) C) and D)

Question 12

Which one of the following is least apt to reduce the unsystematic risk of a portfolio?

Accepted Answer

A)  reducing the number of stocks held in the portfolio
B)  adding bonds to a stock portfolio
C)  adding international securities into a portfolio of U.S.stocks
D)  adding U.S.Treasury bills to a risky portfolio
E)  adding technology stocks to a portfolio of industrial stocksF) D) and E)
G) C) and E)

Question 13

What is the beta of the following portfolio?

Accepted Answer

A)  .95
B)  1.01
C)  1.05
D)  1.09
E)  1.23F) B) and D)
G) B) and E)

Question 14

Which one of the following is the formula that explains the relationship between the expected return on a security and the level of that security's systematic risk?

Accepted Answer

A)  capital asset pricing model
B)  time value of money equation
C)  unsystematic risk equation
D)  market performance equation
E)  expected risk formulaF) A) and B)
G) D) and E)

Question 15

According to CAPM, the expected return on a risky asset depends on three components.Describe each component and explain its role in determining expected return.

Accepted Answer

CAPM suggests the expected return is a f...

Question 16

You have $10,000 to invest in a stock portfolio.Your choices are Stock X with an expected return of 13 percent and Stock Y with an expected return of 8 percent.Your goal is to create a portfolio with an expected return of 12.4 percent.All money must be invested.How much will you invest in stock X?

Accepted Answer

A)  $800
B)  $1,200
C)  $4,600
D)  $8,800
E)  $9,200F) A) and D)
G) A) and B)

Question 17

What is the expected return on this portfolio?

Accepted Answer

A)  11.48 percent
B)  12.37 percent
C)  13.03 percent
D)  13.42 percent
E)  13.97 percentF) A) and D)
G) None of the above

Question 18

The market risk premium is computed by:

Accepted Answer

A)  adding the risk-free rate of return to the inflation rate.
B)  adding the risk-free rate of return to the market rate of return.
C)  subtracting the risk-free rate of return from the inflation rate.
D)  subtracting the risk-free rate of return from the market rate of return.
E)  multiplying the risk-free rate of return by a beta of 1.0.F) B) and D)
G) A) and E)

Question 19

The _____ of a security divided by the beta of that security is equal to the slope of the security market line if the security is priced fairly.

Accepted Answer

A)  real return
B)  actual return
C)  nominal return
D)  risk premium
E)  expected returnF) A) and E)
G) A) and B)

Question 20

Which one of the following is represented by the slope of the security market line?

Accepted Answer

A)  reward-to-risk ratio
B)  market standard deviation
C)  beta coefficient
D)  risk-free interest rate
E)  market risk premiumF) A) and D)
G) D) and E)

Exam 13: Cost of Capital

At a minimum, which of the following would you need to know to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset? I.asset's standard deviation II.asset's beta III.risk-free rate of return IV.market risk premium

Correct AnswerverifiedShow Answer

Which one of the following is least apt to reduce the unsystematic risk of a portfolio?

Correct AnswerverifiedShow Answer

Which one of the following is the formula that explains the relationship between the expected return on a security and the level of that security's systematic risk?

Correct AnswerverifiedShow Answer

Which one of the following is represented by the slope of the security market line?

Correct AnswerverifiedShow Answer

Treynor Industries is investing in a new project.The minimum rate of return the firm requires on this project is referred to as the:

Correct AnswerverifiedShow Answer

You have $10,000 to invest in a stock portfolio.Your choices are Stock X with an expected return of 13 percent and Stock Y with an expected return of 8 percent.Your goal is to create a portfolio with an expected return of 12.4 percent.All money must be invested.How much will you invest in stock X?

Correct AnswerverifiedShow Answer

What is the expected return on a portfolio comprised of $6,200 of stock M and $4,500 of stock N if the economy enjoys a boom period?

Correct AnswerverifiedShow Answer

Which one of the following risks is irrelevant to a well-diversified investor?

Correct AnswerverifiedShow Answer

Steve has invested in twelve different stocks that have a combined value today of $121,300.Fifteen percent of that total is invested in Wise Man Foods.The 15 percent is a measure of which one of the following?

Correct AnswerverifiedShow Answer

The _____ of a security divided by the beta of that security is equal to the slope of the security market line if the security is priced fairly.

Correct AnswerverifiedShow Answer

You own a portfolio with the following expected returns given the various states of the economy.What is the overall portfolio expected return?

Correct AnswerverifiedShow Answer

The expected return on JK stock is 15.78 percent while the expected return on the market is 11.34 percent.The stock's beta is 1.51.What is the risk-free rate of return?

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A stock has an expected return of 11 percent, the risk-free rate is 5.2 percent, and the market risk premium is 5 percent.What is the stock's beta?

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What is the expected return on this portfolio?

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Which one of the following statements is correct?

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Unsystematic risk:

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According to CAPM, the expected return on a risky asset depends on three components.Describe each component and explain its role in determining expected return.

Correct AnswerverifiedCAPM suggests the expected return is a f...View AnswerShow Answer

What is the expected return on a portfolio that is equally weighted between stocks K and L given the following information?

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What is the beta of the following portfolio?

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The market risk premium is computed by:

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CAPM suggests the expected return is a f...
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