Q6 - University of Houston-Victoria FIN 6352 Financial...

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FIN 6352 Financial Management FMQuiz06 Dr. Xavier Garza Gómez University of Houston-Victoria FIN 6352 Financial Management Review Quiz for Chapter 6 - Risk and Return, and the CAPM True-False 1. The slope of the SML is determined by the value of beta. a. True b. False 2. Variance is a measure of the variability of returns and since it involves squaring each deviation of the required return from the expected return, it is always larger than its square root, the standard deviation. a. True b. False 3. If the expected rate of return for a particular investment, as seen by the marginal investor, exceeds its required rate of return, we should soon observe an increase in demand for the investment, and the price will likely increase until a price is established that equates the expected return with the required return. a. True b. False Multiple Choice: Concepts 4. Which of the following statements is most correct? a. The slope of the security market line is beta. b. A stock with a negative beta must have a negative required rate of return. c. If a stock’s beta doubles its required rate of return must double. d. If a stock has a beta equal to 1.0, its required rate of return will be unaffected by changes in the market risk premium. e. None of the above statements is correct.
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FIN 6352 Financial Management FMQuiz06 Dr. Xavier Garza Gómez 5. For markets to be in equilibrium, that is, for there to be no strong pressure for prices to depart from their current levels, a. The expected rate of return must be equal to the required rate of return; that is, rˆ = r. b. The past realized rate of return must be equal to the expected rate of return; that is, r = rˆ . c.
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Q6 - University of Houston-Victoria FIN 6352 Financial...

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