Question 1

How does opportunity cost affect an investor's required rate of return?

Accepted Answer

An investor's required rate of return ca...

Question 2

Assume that you have $100,000 invested in a stock that is returning 14%,$150,000 invested in a stock that is returning 18%,and $200,000 invested in a stock that is returning 15%.What is the expected return of your portfolio?

Accepted Answer

A)   13.25%
B)   14.97%
C)   15.67%
D)   15.78%E) A) and B)
F) A) and C)

Question 3

In an efficient market,a stock with a standard deviation of returns of 12% could have a higher expected return than a stock with a standard deviation of 10% because the beta for the higher standard deviation stock could be lower than the beta for the lower standard deviation stock.

Accepted Answer

A) True 
 B)False

Question 4

You are considering investing in a project with the following possible outcomes:

Calculate the expected rate of return and standard deviation of returns for this investment,respectively.

Accepted Answer

A)   8.72%, 12.99%
B)   7.35%, 12.99%
C)   3.50%, 1.69%
D)   2.18%, 1.69%E) A) and D)
F) B) and C)

Question 5

The beta of a T-bill is one.

Accepted Answer

A) True 
 B)False

Question 6

Wendy purchased 800 shares of Robotics stock at $3 per share on 1/1/09.Wendy sold the shares on 12/31/09 for $3.45.Robotics stock has a beta of 1.3,the risk-free rate of return is 3%,and the market risk premium is 8%.The required return on Robotics stock is

Accepted Answer

A)   13.4%.
B)   16.5%.
C)   17.6%.
D)   21.1%.E) A) and D)
F) A) and C)

Question 7

Variation in the rate of return of an investment is a measure of the riskiness of that investment.

Accepted Answer

A) True 
 B)False

Question 8

You purchased 500 shares of A.M.J.Inc.common stock one year ago for $50 per share.You received a dividend of $2 per share today and decide to take your profits by selling at $54.50 per share.What is your holding period return?

Accepted Answer

A)   13.0%
B)   9.0%
C)   6.5%
D)   4.0%E) None of the above
F) A) and B)

Question 9

The minimum rate of return necessary to attract an investor to purchase or hold a security is referred to as the

Accepted Answer

A)   stock's beta.
B)   investor's risk premium.
C)   investor's required rate of return.
D)   risk-free rate.E) B) and D)
F) All of the above

Question 10

Total risk equals systematic risk plus unsystematic risk.

Accepted Answer

A) True 
 B)False

Question 11

If the beta for stock A equals zero,then

Accepted Answer

A)   stock A's required return is equal to the required return on the market portfolio.
B)   stock A's required return is equal to the risk-free rate of return.
C)   stock A has a guaranteed return.
D)   stock A's required return is greater than the required return on the market portfolio.E) None of the above
F) B) and D)

Question 12

The risk-return trade-off that investors face on a day-to-day basis is based on realized rates of return because expected returns involve too much uncertainty.

Accepted Answer

A) True 
 B)False

Question 13

You are thinking of adding one of two investments to an already well- diversified portfolio.

If you are a risk-averse investor,which one is the better choice?

Accepted Answer

A)   Security A
B)   Security B
C)   Either security would be acceptable because they have the same beta.
D)   Security B, but only if Security B's required return is greater than 12%.E) A) and B)
F) C) and D)

Question 14

Stock W has the following returns for various states of the economy:

Stock W's standard deviation of returns is

Accepted Answer

A)   10%.
B)   14%.
C)   17%.
D)   20%E) A) and B)
F) B) and D)

Question 15

Stock A has a beta of 1.2 and a standard deviation of returns of 14%.Stock B has a beta of 1.8 and a standard deviation of returns of 18%.If the risk-free rate of return increases and the market risk premium remains constant,then

Accepted Answer

A)   the required return on stock B will increase more than the required return on stock A.
B)   the required returns on stocks A and B will both increase by the same amount.
C)   the required returns on stocks A and B will not change.
D)   the required return on stock A will increase more than the required return on stock B.E) All of the above
F) A) and B)

Question 16

The S&P 500 index must be used as the measure of market return in the CAPM or the results are not theoretically accurate.

Accepted Answer

A) True 
 B)False

Question 17

Beta is a statistical measure of

Accepted Answer

A)   unsystematic risk.
B)   total risk.
C)   the standard deviation.
D)   the relationship between an investment's returns and the market return.E) A) and D)
F) C) and D)

Question 18

The characteristic line for any well-diversified portfolio is horizontal.

Accepted Answer

A) True 
 B)False

Question 19

Based on the security market line,Robo-Tech stock has a required return of 14% and Friendly Insurance Company has a required return of 10%.Robo-Tech has a standard deviation of returns of 18%.Therefore,

Accepted Answer

A)   Friendly must have a standard deviation of returns of less than 18% because Friendly is less risky than Robo-Tech.
B)   all rational investors will prefer Friendly over Robo-Tech.
C)   for a well-diversified investor, Friendly is less risky than Robo-Tech.
D)   the beta for Friendly must be greater than the beta for Robo-Tech because Friendly is the better buy for a risk-averse investor.E) None of the above
F) A) and B)

Question 20

Which of the following is the slope of the security market line?

Accepted Answer

A)   beta
B)   one
C)   It varies, and it is steeper for riskier securities.
D)   the market risk premiumE) A) and B)
F) A) and C)

Exam 6: The Meaning and Measurement of Risk and Return

Which of the following is the slope of the security market line?

Correct AnswerverifiedShow Answer

The minimum rate of return necessary to attract an investor to purchase or hold a security is referred to as the

Correct AnswerverifiedShow Answer

If the beta for stock A equals zero,then

Correct AnswerverifiedShow Answer

Beta is a statistical measure of

Correct AnswerverifiedShow Answer

You purchased 500 shares of A.M.J.Inc.common stock one year ago for $50 per share.You received a dividend of $2 per share today and decide to take your profits by selling at $54.50 per share.What is your holding period return?

Correct AnswerverifiedShow Answer

Wendy purchased 800 shares of Robotics stock at $3 per share on 1/1/09.Wendy sold the shares on 12/31/09 for $3.45.Robotics stock has a beta of 1.3,the risk-free rate of return is 3%,and the market risk premium is 8%.The required return on Robotics stock is

Correct AnswerverifiedShow Answer

The risk-return trade-off that investors face on a day-to-day basis is based on realized rates of return because expected returns involve too much uncertainty.

Correct AnswerverifiedShow Answer

How does opportunity cost affect an investor's required rate of return?

Correct AnswerverifiedAn investor's required rate of return ca...View AnswerShow Answer

The beta of a T-bill is one.

Correct AnswerverifiedShow Answer

Stock W has the following returns for various states of the economy: Stock W's standard deviation of returns is

Correct AnswerverifiedShow Answer

In an efficient market,a stock with a standard deviation of returns of 12% could have a higher expected return than a stock with a standard deviation of 10% because the beta for the higher standard deviation stock could be lower than the beta for the lower standard deviation stock.

Correct AnswerverifiedShow Answer

Based on the security market line,Robo-Tech stock has a required return of 14% and Friendly Insurance Company has a required return of 10%.Robo-Tech has a standard deviation of returns of 18%.Therefore,

Correct AnswerverifiedShow Answer

Variation in the rate of return of an investment is a measure of the riskiness of that investment.

Correct AnswerverifiedShow Answer

You are considering investing in a project with the following possible outcomes: Calculate the expected rate of return and standard deviation of returns for this investment,respectively.

Correct AnswerverifiedShow Answer

The S&P 500 index must be used as the measure of market return in the CAPM or the results are not theoretically accurate.

Correct AnswerverifiedShow Answer

Stock A has a beta of 1.2 and a standard deviation of returns of 14%.Stock B has a beta of 1.8 and a standard deviation of returns of 18%.If the risk-free rate of return increases and the market risk premium remains constant,then

Correct AnswerverifiedShow Answer

You are thinking of adding one of two investments to an already well- diversified portfolio. If you are a risk-averse investor,which one is the better choice?

Correct AnswerverifiedShow Answer

Assume that you have $100,000 invested in a stock that is returning 14%,$150,000 invested in a stock that is returning 18%,and $200,000 invested in a stock that is returning 15%.What is the expected return of your portfolio?

Correct AnswerverifiedShow Answer

The characteristic line for any well-diversified portfolio is horizontal.

Correct AnswerverifiedShow Answer

Total risk equals systematic risk plus unsystematic risk.

Correct AnswerverifiedShow Answer

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An investor's required rate of return ca...
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