{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

350i3-capm

# 350i3-capm - FIN350 ICW No 3 CAPM(part 2 1 The capital...

This preview shows pages 1–3. Sign up to view the full content.

FIN350 ICW No. 3---- CAPM (part 2) 1. The capital asset pricing model A) provides a risk-return trade-off in which risk is measured in terms of the market volatility. B) provides a risk-return trade-off in which risk is measured in terms of beta. C) measures risk as the coefficient of variation between security and market rates of return D) depicts the total risk of a security 2. Sibling Incorporated has a beta of 1.0. If the expected return on the market is 14 percent, what is the expected return on Sibling Incorporated's stock? 3. You determine that XYZ common stock will return 15 percent. XYZ has a beta of 1.5. The risk-free rate is 5 percent, and the market expected return is 15 percent. Which of the following is most likely to happen: Expected return=15% < required return=5%+1.5*(15%-5%)=20%, stock is over valued 4. If you hold a \$1.3 million portfolio made up of the following stocks: Market value Beta Stock A .2 million 1.5 B .5 million 1.2 C .6 million .8 What is the beta of the portfolio? 0.2/1.3*1.5+0.5/1.3*1.2+0.6/1.3*0.8=1.06 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
5. Which of the following is/are true of the Capital Asset Pricing Model? A) It uses the T-bill rate as the risk-free rate B) It uses beta as a measure of market risk C) all of the above 6. Stock A has a beta of 1.5 and stock B has a beta of 0.5. Which of the following statements must be true a bout these securities?
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 8

350i3-capm - FIN350 ICW No 3 CAPM(part 2 1 The capital...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online