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Unformatted text preview: v [ ] be found in the efficient set of returns. [ ] lie above the upper bound of the efficient set of returns. [ ] be greater than that of the best performing individual security owned in the portfolio. [ ] be below that of the minimum variance portfolio. 24) The capital asset pricing model (CAPM) demonstrates that the expected return for a particular asset depends on the: I. amount of unsystematic risk inherent in the asset. II. reward for bearing systematic risk. III. risk-free rate of return. IV. responsiveness of a security to movements of the market portfolio. [ ] I only [ ] I and III only [ ] II and III only [ ] I, II, and III only v [ ] II, III, and IV only 25) You have a portfolio consisting of equal amounts of Microsoft stock and U.S. Treasury bills. If you replace half of the U.S. Treasury bills with more Microsoft stock, the portfolio expected return will _____, all else equal. v [ ] increase [ ] decrease [ ] remain unchanged [ ] either increase or decrease, but you cannot tell which based on the information provided [ ] either remain unchanged or increase, but you cannot tell which based on the information provided 26) A stock has an expected return of 16.74 percent. The market risk premium is 9.15 percent and the risk-free rate is 4.20 percent. What is the stock's beta? [ ] 1.33 v [ ] 1.37 [ ] 1.48 [ ] 1.51 [ ] 1.62 27) Which of the following are examples primarily of systematic risk? I. lower GDP growth rate than expected II. quarterly profit for GM exactly as expected III. lower quarterly sales for Dell Computer than expected IV. higher inflation than anticipated [ ] I and III only [ ] II and IV only v [ ] I and IV only [ ] II and IV only [ ] I, II, III, and IV 28) Investing ten percent of a domestic portfolio in higher risk international securities is expected to: v [ ] decrease the risk while increasing the return. [ ] decrease both the risk and the return. [ ] increase the risk and also the return. [ ] increase the risk while decreasing the return. [ ] decrease the risk while holding the return constant. 29) To hedge a portfolio of two securities, you need to select securities that: [ ] have a positive correlation. [ ] have positive individual variances. v [ ] have a negative covariance. [ ] increase the portfolio variance. [ ] have low standard deviations. 30) You own two risky assets, both of which plot on the security market line (SML). Asset A has an expected return of 10.132 percent and a beta of .76. Asset B has an expected return of 16.692 percent and a beta of 1.56. Your portfolio beta is the same as the market beta. How much of your portfolio is invested in Asset A? [ ] 30 percent [ ] 40 percent [ ] 60 percent v [ ] 70 percent [ ] 130 percent 31) The market has an expected return of 12.7 percent and a standard deviation of 7.4 percent. Stock A has a covariance with the market of 0.00...
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- Spring '08