Question 1

Beta measures:

Accepted Answer

A)   the ability to diversify risk.
B)   how an asset covaries with the market.
C)   the actual return on an asset.
D)   the standard deviation of the assets' returns.
E)   All ofF) A) and D)
G) C) and E)

Question 2

A well-diversified portfolio has negligible:

Accepted Answer

A)   expected return.
B)   systematic risk.
C)   unsystematic risk.
D)   variance.
E)   Both unsystematic risk; and varianceF) D) and E)
G) None of the above

Question 3

What is the variance of a portfolio consisting of $3,500 in stock G and $6,500 in stock H?

Accepted Answer

A)   .000209
B)   .000247
C)   .002098
D)   .037026
E)   .073600F) C) and D)
G) A) and C)

Question 4

The correlation between two stocks:

Accepted Answer

A)   can take on positive values.
B)   can take on negative values.
C)   cannot be greater than 1.
D)   cannot be less than -1.
E)   All ofF) B) and C)
G) C) and E)

Question 5

The percentage of a portfolio's total value invested in a particular asset is called that asset's:

Accepted Answer

A)   portfolio return.
B)   portfolio weight.
C)   portfolio risk.
D)   rate of return.
E)   investment valuE.F) A) and E)
G) All of the above

Question 6

If the economy booms,RTF,Inc. stock is expected to return 10%. If the economy goes into a recessionary period,then RTF is expected to only return 4%. The probability of a boom is 60% while the probability of a recession is 40%. What is the variance of the returns on RTF,Inc. stock?

Accepted Answer

A)   .000200
B)   .000760
C)   .000864
D)   .001594
E)   .029394F) All of the above
G) A) and D)

Question 7

According to the Capital Asset Pricing Model:

Accepted Answer

A)   the expected return on a security is negatively and non-linearly related to the security's beta.
B)   the expected return on a security is negatively and linearly related to the security's beta.
C)   the expected return on a security is positively and linearly related to the security's variance.
D)   the expected return on a security is positively and non-linearly related to the security's beta.
E)   the expected return on a security is positively and linearly related to the security's beta.F) None of the above
G) A) and D)

Question 8

Unsystematic risk:

Accepted Answer

A)   can be effectively eliminated through portfolio diversification.
B)   is compensated for by the risk premium.
C)   is measured by beta.
D)   cannot be avoided if you wish to participate in the financial markets.
E)   is related to the overall economy.F) B) and E)
G) A) and E)

Question 9

According to the CAPM:

Accepted Answer

A)   the expected return on a security is negatively and non-linearly related to the security's beta.
B)   the expected return on a security is negatively and linearly related to the security's beta.
C)   the expected return on a security is positively and linearly related to the security's variance.
D)   the expected return on a security is positively and non-linearly related to the security's beta.
E)   the expected return on a security is positively related to the security's beta.F) D) and E)
G) A) and D)

Question 10

A typical investor is assumed to be:

Accepted Answer

A)   a fair gambler.
B)   a gambler.
C)   a single security holder.
D)   risk averse.
E)   risk neutral.F) A) and E)
G) D) and E)

Question 11

The slope of an asset's security market line is the:

Accepted Answer

A)   reward-to-risk ratio.
B)   portfolio weight.
C)   beta coefficient.
D)   risk-free interest rate.
E)   market risk premium.F) B) and E)
G) A) and E)

Question 12

The expected return on a portfolio:

Accepted Answer

A)   can be greater than the expected return on the best performing security in the portfolio.
B)   can be less than the expected return on the worst performing security in the portfolio.
C)   is independent of the performance of the overall economy.
D)   is limited by the returns on the individual securities within the portfolio.
E)   is an arithmetic average of the returns of the individual securities when the weights of those securities are unequal.F) A) and B)
G) A) and C)

Question 13

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)   6.3%
B)   6.8%
C)   7.6%
D)   10.0%
E)   10.8%F) All of the above
G) A) and C)

Question 14

The intercept point of the security market line is the rate of return which corresponds to:

Accepted Answer

A)   the risk-free rate of return.
B)   the market rate of return.
C)   a value of zero.
D)   a value of 1.0.
E)   the beta of the market.F) A) and E)
G) B) and E)

Question 15

Quantpiks has been a hot stock the last few years,but is risky. The expected returns for Quantpiks are highly dependent on the state of the economy as follows: The variance of Quantpiks returns is:

Accepted Answer

A)   .0207
B)   .0428
C)   .0643
D)   .0733
E)   None of these.F) A) and D)
G) A) and E)

Question 16

You are considering purchasing stock S. This stock has an expected return of 8% if the economy booms and 3% if the economy goes into a recessionary period. The overall expected rate of return on this stock will:

Accepted Answer

A)   be equal to one-half of 8% if there is a 50% chance of an economic boom.
B)   vary inversely with the growth of the economy.
C)   increase as the probability of a recession increases.
D)   be equal to 75% of 8% if there is a 75% chance of a boom economy.
E)   increase as the probability of a boom economy increases.F) B) and E)
G) A) and E)

Question 17

What is the portfolio variance if 30% is invested in stock S and 70% is invested in stock T?

Accepted Answer

A)   .002220
B)   .004056
C)   .006224
D)   .008080
E)   .098000F) A) and E)
G) A) and D)

Question 18

Systematic risk is measured by:

Accepted Answer

A)   the mean.
B)   beta.
C)   the geometric average.
D)   the standard deviation.
E)   the arithmetic averagE.F) A) and C)
G) A) and D)

Question 19

The stock of Big Joe's has a beta of 1.14 and an expected return of 11.6%. The risk-free rate of return is 4%. What is the expected return on the market?

Accepted Answer

A)   7.60%
B)   8.04%
C)   9.33%
D)   10.67%
E)   12.16%F) A) and B)
G) None of the above

Question 20

You recently purchased a stock that is expected to earn 25% in a booming economy,9% in a normal economy and lose 8% in a recessionary economy. There is a 15% probability of a boom,a 65% chance of a normal economy,and a 10% chance of a recession. What is your expected rate of return on this stock?

Accepted Answer

A)   7.65%
B)   8.05%
C)   8.67%
D)   8.83%
E)   9.00%F) None of the above
G) C) and E)

Exam 11: Return and Risk: the Capital Asset Pricing Model Capm

The slope of an asset's security market line is the:

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Systematic risk is measured by:

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The stock of Big Joe's has a beta of 1.14 and an expected return of 11.6%. The risk-free rate of return is 4%. What is the expected return on the market?

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What is the portfolio variance if 30% is invested in stock S and 70% is invested in stock T?

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According to the Capital Asset Pricing Model:

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

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Beta measures:

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According to the CAPM:

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You are considering purchasing stock S. This stock has an expected return of 8% if the economy booms and 3% if the economy goes into a recessionary period. The overall expected rate of return on this stock will:

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Quantpiks has been a hot stock the last few years,but is risky. The expected returns for Quantpiks are highly dependent on the state of the economy as follows: The variance of Quantpiks returns is:

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A typical investor is assumed to be:

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You recently purchased a stock that is expected to earn 25% in a booming economy,9% in a normal economy and lose 8% in a recessionary economy. There is a 15% probability of a boom,a 65% chance of a normal economy,and a 10% chance of a recession. What is your expected rate of return on this stock?

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The percentage of a portfolio's total value invested in a particular asset is called that asset's:

Correct AnswerverifiedShow Answer

What is the variance of a portfolio consisting of $3,500 in stock G and $6,500 in stock H?

Correct AnswerverifiedShow Answer

If the economy booms,RTF,Inc. stock is expected to return 10%. If the economy goes into a recessionary period,then RTF is expected to only return 4%. The probability of a boom is 60% while the probability of a recession is 40%. What is the variance of the returns on RTF,Inc. stock?

Correct AnswerverifiedShow Answer

A well-diversified portfolio has negligible:

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The intercept point of the security market line is the rate of return which corresponds to:

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The expected return on a portfolio:

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The correlation between two stocks:

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Unsystematic risk:

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