Question 1

Which of the following statements is CORRECT?

Accepted Answer

A)   Lower beta stocks have higher required returns.
B)   A stock's beta indicates its diversifiable risk.
C)   Diversifiable risk cannot be completely diversified away.
D)   Two securities with the same stand-alone risk must have the same betas.
E)   The slope of the security market line is equal to the market risk premium.F) A) and B)
G) B) and E)

Question 2

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

Accepted Answer

A)   The effect of a change in the market risk premium depends on the slope of the yield curve.
B)   If the market risk premium increases by 1%, then the required return on all stocks will rise by 1%.
C)   If the market risk premium increases by 1%, then the required return will increase by 1% for a stock that has a beta of 1.0.
D)   The effect of a change in the market risk premium depends on the level of the risk-free rate.
E)   If the market risk premium increases by 1%, then the required return will increase for stocks that have a beta greater than 1.0, but it will decrease for stocks that have a beta less than 1.0.F) A) and B)
G) A) and C)

Question 3

Variance is a measure of the variability of returns, and since it involves squaring the deviation of each actual return from the expected return, it is always larger than its square root, its standard deviation.

Accepted Answer

A) True 
 B)False

Question 4

Gardner Electric has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, and the T-bond rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual future return on the market to be 12.50%. Using the SML, what is the firm's required rate of return?

Accepted Answer

A)   11.34%
B)   11.63%
C)   11.92%
D)   12.22%
E)   12.52%F) D) and E)
G) A) and C)

Question 5

Which of the following statements is CORRECT?

Accepted Answer

A)   If the risk-free rate rises, then the market risk premium must also rise.
B)   If a company's beta is halved, then its required return will also be halved.
C)   If a company's beta doubles, then its required return will also double.
D)   The slope of the security market line is equal to the market risk premium, (rM − rRF) .
E)   Beta is measured by the slope of the security market line.F) B) and E)
G) C) and D)

Question 6

Portfolio A has but one stock, while Portfolio B consists of all stocks that trade in the market, each held in proportion to its market value. Because of its diversification, Portfolio B will by definition be riskless.

Accepted Answer

A) True 
 B)False

Exam 6: Risk, Return, and the Capital Asset Pricing Model

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

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Portfolio A has but one stock, while Portfolio B consists of all stocks that trade in the market, each held in proportion to its market value. Because of its diversification, Portfolio B will by definition be riskless.

Correct Answer
verified

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Variance is a measure of the variability of returns, and since it involves squaring the deviation of each actual return from the expected return, it is always larger than its square root, its standard deviation.

Correct Answer
verified

Exam 6: Risk, Return, and the Capital Asset Pricing Model

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

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Portfolio A has but one stock, while Portfolio B consists of all stocks that trade in the market, each held in proportion to its market value. Because of its diversification, Portfolio B will by definition be riskless.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Variance is a measure of the variability of returns, and since it involves squaring the deviation of each actual return from the expected return, it is always larger than its square root, its standard deviation.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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