Chapter 8 Review Session

Chapter 8 Review Session - Chapter 8 Review Session 2007...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
© 2007 Robert H. Smith School of Business University of Maryland “Chapter 8 Review Session”
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
© 2007 Robert H. Smith School of Business University of Maryland Chapter 8 Review Session 1. In a portfolio of three different stocks, which of the following could not be true? a. The riskiness of the portfolio is less than the riskiness of each stock 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 less than the beta of each individual stock. d. The beta of the portfolio is greater than the beta of one or two of the individual stocks. e. The beta of the portfolio equals the beta of one of the individual stocks.
Background image of page 2
© 2007 Robert H. Smith School of Business University of Maryland Chapter 8 Review Session 1. C is correct. Portfolio beta is a weighted average of the betas of the individual stocks in the portfolio. Portfolio beta can never be less than all of the individual betas. A can be true – if stocks are negatively correlated, portfolio variance can be less than individual stock variance. B, d and e also can be true – portfolios may have low and high risk stocks, with low and high betas.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
© 2007 Robert H. Smith School of Business University of Maryland Chapter 8 Review Session 1. Which of the following statements are true? a. The SML relates required returns to firms’ market risk. The slope and intercept of this line are controlled by the financial manager. b. The slope of the SML is determined by the value of beta. c. If you plotted the returns of a given stock against those of the market, and if you found that the slope of the regression line was negative, then the CAPM model would indicate that the required return on the stock should be less than the risk-free rate for a well-
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/12/2009 for the course BMGT 340 taught by Professor White during the Spring '08 term at Maryland.

Page1 / 15

Chapter 8 Review Session - Chapter 8 Review Session 2007...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online