Unformatted text preview: ystematic risk can be eliminated within a portfolio containing multiple securities. [ ] a portfolio created such that the portfolio beta is 1.0 will be riskfree. 63) What is the expected market return if the expected return on a stock is 14.80 percent and the riskfree rate is 4.20 percent? The stock has a beta of 1.2. [ ] 8.83 percent [ ] 9.33 percent [ ] 12.67 percent v [ ] 13.03 percent [ ] 15.53 percent 64) Which of the following can be eliminated from a welldiversified portfolio? I. market risk II. unique specific risk III. unsystematic risk IV. systematic risk [ ] I only [ ] II only [ ] I and IV only v [ ] II and III only [ ] I, II, and III only 65) Which of the following actions will increase a portfolio's systematic risk? I. selling shares of a common stock out of a portfolio and replacing those shares with U.S. Treasury bills II. adding stocks with a beta equal to the market to a portfolio of U.S. Treasury bills III. selling shares of a lowbeta stock and replacing them with shares of a highbeta stock [ ] I only [ ] II only [ ] III only [ ] I and II only v [ ] II and III only 66) Assume that the riskfree rate of return is 2.5 percent. Given this, the expected return on the market will be: I. positive. II. negative. III. equal to zero. v [ ] I only [ ] II only [ ] III only [ ] I and III only [ ] I, II, and III 67) Which of the following statements is correct concerning the security market line (SML)? Assume that the return on the market is greater than the riskfree rate. I. The market risk premium is the slope of the SML. II. The SML is upsloping. III. The SML is a linear function. IV. The market rate of return is the intercept point. [ ] II and III only [ ] I and IV only [ ] II, III, and IV only v [ ] I, II, and III only [ ] I, II, III, and IV 68) A stock has an expected return of 14.23 percent and a beta of 1.11. The riskfree rate is 3.75 percent. What is the market risk premium? [ ] 5.69 percent [ ] 7.14 percent v [ ] 9.44 percent [ ] 10.28 percent [ ] 10.70 percent 69) Which of the following would generally be considered an example of systematic risk? I. higher quarterly gains than expected for Home Depot II. lower consumer spending than expected III. lower unemployment than expected IV. labor strike at Ford Motor Company [ ] I and III only [ ] II and IV only [ ] III and IV only v [ ] II and III only [ ] I and III only 70) The standard deviation of a portfolio of two securities is less than the weighted average of the standard deviations of the two separate securities provided that the correlation of the two securities is: v [ ] less than 1.0. [ ] equal to 1.0. [ ] greater than 1.0 but less than 2.0. [ ] equal to 2.0. [ ] greater than 2.0. 71) The variance of a portfolio comprised of one risky asset and one riskfree security is .00180455. The standard deviation of the risky security is 11.80 percen...
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 Spring '08
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 Variance, Capital Asset Pricing Model, Financial Markets, Modern portfolio theory

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