Finance 8 - 5.0/5.0 Correct Answer(s): D 3. A highly...

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1.  Bradley Hotels has a beta of 1.3, while Douglas Farms has a beta of 0.7. The required return on an index fund that holds the entire stock market is 12%. The risk-free rate is 7%. By how much does Bradley's required return exceed Douglas' required return? A)  6.0% B)  3.0% C)  7.0% D)  6.5% E)  5.0% Points Earned:  5.0/5.0  Correct Answer(s): B 2.  You are holding a stock that has a beta of 2.0 and is currently in equilibrium. The required return on the stock is 15%, and the return on an average stock is 10%. What would be the percentage change in the return on the stock, if the return on an average stock increased by 30% while the risk-free rate remained unchanged? A)  +30% B)  +60% C)  +50% D)  +40% E)  +20% Points Earned: 
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Unformatted text preview: 5.0/5.0 Correct Answer(s): D 3. A highly risk-averse investor is considering adding one additional stock to a 4-stock portfolio. Two stocks are under consideration. Both have an expected return, , of 15%. However, the distribution of possible returns associated with Stock A has a standard deviation of 12%, while Stock B's standard deviation is 8%. Both stocks are equally highly correlated with the market, with r equal to 0.75 for both stocks. Which stock should this risk-averse investor add to his/her portfolio? A) Add A, since its beta is lower. B) Stock A. C) Either A or B. D) Neither A nor B. E) Stock B. Points Earned: 5.0/5.0 Correct Answer(s): E...
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Finance 8 - 5.0/5.0 Correct Answer(s): D 3. A highly...

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