Question 1

Mike Flannery holds the following portfolio: What is the portfolio's beta?

Accepted Answer

A)   1.06
B)   1.17
C)   1.29
D)   1.42
E)   1.56F) A) and D)
G) A) and C)

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Stocks A and B each have an expected return of 15%, a standard deviation of 20%, and a beta of 1.2. The returns on the two stocks have a correlation coefficient of +0.6. You have a portfolio that consists of 50% A and 50% B. Which of the following statements is CORRECT?

Accepted Answer

A)   The portfolio's beta is less than 1.2.
B)   The portfolio's expected return is 15%.
C)   The portfolio's standard deviation is greater than 20%.
D)   The portfolio's beta is greater than 1.2.
E)   The portfolio's standard deviation is 20%.F) None of the above
G) A) and D)

Question 4

In a portfolio of three randomly selected stocks, which of the following could NOT be true, i.e., which statement is false?

Accepted Answer

A)   The riskiness of the portfolio is less than the riskiness of each of the stocks if they were held in isolation.
B)   The riskiness of the portfolio is greater than the riskiness of one or two of the stocks.
C)   The beta of the portfolio is lower than the lowest of the three betas.
D)   The beta of the portfolio is higher than the highest of the three betas.
E)   The beta of the portfolio is calculated as a weighted average of the individual stocks' betas.F) B) and D)
G) B) and E)

Question 5

Which of the following statements is CORRECT?

Accepted Answer

A)   A stock's beta is less relevant as a measure of risk to an investor with a well-diversified portfolio than to an investor who holds only that one stock.
B)   If an investor buys enough stocks, he or she can, through diversification, eliminate all of the diversifiable risk inherent in owning stocks. Therefore, if a portfolio contained all publicly traded stocks, it would be essentially riskless.
C)   The required return on a firm's common stock is, in theory, determined solely by its market risk. If the market risk is known, and if that risk is expected to remain constant, then no other information is required to specify the firm's required return.
D)   Portfolio diversification reduces the variability of returns (as measured by the standard deviation)  of each individual stock held in a portfolio.
E)   A security's beta measures its non-diversifiable, or market, risk relative to that of an average stock.F) A) and B)
G) A) and E)

Question 6

The Y-axis intercept of the SML represents the required return of a portfolio with a beta of zero, which is the risk-free rate.

Accepted Answer

A) True 
 B)False

Question 7

We would almost always find that the beta of a diversified portfolio is less stable over time than the beta of a single security.

Accepted Answer

A) True 
 B)False

Exam 8: Risk and Return

In a portfolio of three randomly selected stocks, which of the following could NOT be true, i.e., which statement is false?

Correct Answer
verified

Stocks A and B each have an expected return of 15%, a standard deviation of 20%, and a beta of 1.2. The returns on the two stocks have a correlation coefficient of +0.6. You have a portfolio that consists of 50% A and 50% B. Which of the following statements is CORRECT?

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

The Y-axis intercept of the SML represents the required return of a portfolio with a beta of zero, which is the risk-free rate.

Correct Answer
verified

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

Correct Answer
verified

We would almost always find that the beta of a diversified portfolio is less stable over time than the beta of a single security.

Correct Answer
verified

Mike Flannery holds the following portfolio: What is the portfolio's beta?

Correct Answer
verified

Exam 8: Risk and Return

In a portfolio of three randomly selected stocks, which of the following could NOT be true, i.e., which statement is false?

Correct AnswerverifiedShow Answer

Stocks A and B each have an expected return of 15%, a standard deviation of 20%, and a beta of 1.2. The returns on the two stocks have a correlation coefficient of +0.6. You have a portfolio that consists of 50% A and 50% B. Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

The Y-axis intercept of the SML represents the required return of a portfolio with a beta of zero, which is the risk-free rate.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

We would almost always find that the beta of a diversified portfolio is less stable over time than the beta of a single security.

Correct AnswerverifiedShow Answer

Mike Flannery holds the following portfolio: What is the portfolio's beta?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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