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Unformatted text preview: Questions in [New Questions] 1) What is the beta of a portfolio that is invested 75 percent in the market portfolio and 25 percent in a risk-free asset? [ ] 0.25 [ ] 0.50 v [ ] 0.75 [ ] 1.00 [ ] 1.25 2) A stock has a beta of .87. The market has an expected return of 11.8 percent with a standard deviation of 8.9 percent. What is the covariance of the stock with the market? [ ] .00487 v [ ] .00689 [ ] .00723 [ ] .00982 [ ] .01098 3) Assume you own a portfolio comprised of two securities. The covariance measures the _____ between the two securities, which if positive will _____ the variance of the entire portfolio. v [ ] relationship; increase [ ] relationship; decrease [ ] risk; increase [ ] risk; decrease [ ] risk; not effect 4) Trevor has a portfolio valued at $4,500. Of this amount, $3,150 is invested in Home Center stock and the remainder is invested in Garden Flowers stock. The expected return on Home Center stock is 15.4 percent and the expected return on Garden Flowers stock is 9.8 percent. What is the expected return on Trevor's portfolio? [ ] 8.97 percent [ ] 10.78 percent [ ] 12.60 percent v [ ] 13.72 percent [ ] 14.99 percent 5) Which one of the following statements is correct? [ ] The risk of a portfolio is defined as the var [ ] Unsystematic risk is defined as the var [ ] Unsystematic risk is another term for market risk. [ ] Diversifiable, market, and unique risk are all different terms for the same risk. v [ ] Market risk is another term for systematic risk. 6) The common stock of Marine Coast Lines (MCL) has a beta of 1.64. Given this, which of the following is true assuming that MCL stock is priced correctly? [ ] If the market risk premium decreases, the expected return on MCL will increase. [ ] If the market rate of return increases by 2 percent, the expected return on MCL will increase by 0.82 percent. [ ] MCL stock earns a higher risk premium per unit of beta than does the market. [ ] The return on MCL will increase by 1.64 percent if the risk-free rate increases by 1 percent while the market return remains constant. v [ ] The returns on MCL stock will vary over a wider range than will the returns on the market over an extended period of time. 7) If the rates of return on two stocks are unrelated, the covariance of the two stocks should be: [ ] -100. [ ] -1. v [ ] 0. [ ] 1. [ ] 100. 8) Assume that the risk-free rate is 4.5 percent, the beta of stock X is 1.42, the beta of stock Y is 0.78, the expected return on stock X is 16.285 percent, and the expected return on stock Y is 10.628 percent. Also assume that stock X is fairly priced and the betas of stocks X and Y are accurate. Given these assumptions, which one of the following statements is correct? [ ] Stock Y is also fairly priced. [ ] The expected return on stock X is too high. [ ] The expected return on stock Y is too high....
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This note was uploaded on 06/15/2008 for the course ACC 501 504 taught by Professor Na during the Spring '08 term at University of Texas at Austin.
- Spring '08