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chap7_exercise

# chap7_exercise - What is the expected return on a stock...

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Chapter 7 Selected Problems: From textbooks 1, P234 #1 2, P234 #7 3, P235 #10 4, P236 #19 Additional multiple choice questions: 1. According to the capital asset pricing model, a well-diversified portfolio's rate of return is a function of __________. A) market risk B) unsystematic risk C) unique risk D) reinvestment risk 2. According to the capital asset pricing model, a security with a __________.

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3. Stocks A, B, C and D have betas of 1.5, 0.4, 0.9 and 1.7 respectively. What is the beta of an equally weighted portfolio of A, B and C? 4. Consider the CAPM. The risk-free rate is 6% and the expected return on the market is 18%.
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Unformatted text preview: What is the expected return on a stock with a beta of 1.3? A) 6% B) 15.6% C) 18% D) 21.6% 5. According to the capital asset pricing model, the expected rate of return on any security is equal to __________. A) [(the risk-free rate) + (beta of the security)] x (market risk premium) B) (the risk-free rate) + [(variance of the security's return) x (market risk premium)] C) (the risk-free rate) + [(security's beta) x (market risk premium)] D) (market rate of return) + (the risk-free rate) 6. Security X has an expected rate of return of 13% and a beta of 1.15. The risk-free rate is 5% and the market expected rate of return is 15%. According to the capital asset pricing model, security X is __________. A) fairly priced B) overpriced C) underpriced D) None of the above answers are correct...
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