MGMT 611 Chapter 6 Assignment with key

MGMT 611 Chapter 6 Assignment with key - MGMT 611 Chapter 6...

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MGMT 611 Chapter 6 Assignment Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. Inflation, recession, and high interest rates are economic events that are best characterized as being a. systematic risk factors that can be diversified away. b. company-specific risk factors that can be diversified away. c. among the factors that are responsible for market risk. d. risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers. e. irrelevant except to governmental authorities like the Federal Reserve. ____ 2. Stock A's beta is 1.5 and Stock B's beta is 0.5. Which of the following statements must be true, assuming the CAPM is correct. a. Stock A would be a more desirable addition to a portfolio than Stock B. b. In equilibrium, the expected return on Stock B will be greater than that on Stock A. c. When held in isolation, Stock A has more risk than Stock B. d. Stock B would be a more desirable addition to a portfolio than Stock A. e. In equilibrium, the expected return on Stock A will be greater than that on Stock B. ____ 3. For a portfolio of 40 randomly selected stocks, which of the following is most likely to be true? a. The riskiness of the portfolio is greater than the riskiness of each of the stocks if each was held in isolation. b. The riskiness of the portfolio is the same as the riskiness of each of the stocks if each was held in isolation. c. The beta of the portfolio is less than the average of the betas of the individual stocks. d. The beta of the portfolio is equal to the average of the betas of the individual stocks. e. The beta of the portfolio is larger than the average of the betas of the individual stocks. ____ 4. The risk-free rate is 6%; Stock A has a beta of 1.0; Stock B has a beta of 2.0; and the market risk premium, r M - r RF , is positive. Which of the following statements is CORRECT? a. If the risk-free rate increases but the market risk premium stays unchanged, Stock B's required return will increase by more than Stock A's. b.
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This note was uploaded on 04/13/2010 for the course MGMT 611 taught by Professor Staff during the Spring '08 term at Purdue.

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MGMT 611 Chapter 6 Assignment with key - MGMT 611 Chapter 6...

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