Topic 10 The Standard Capital Asset Pricing Model.pdf

# The risk free asset i the market portfolio ii assets

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The risk-free asset. I. The market portfolio. II. Assets that maximize return relative to asset-specific risk. III. A portfolio (other than the market portfolio) on the efficient frontier of risky portfolios. IV. I, II and IV only. II and III only. I and II only. I only. Given the following data, what is the correlation coefficient between the two stocks and the Beta of stock A? standard deviation of returns of Stock A is 10.04% standard deviation of returns of Stock B is 2.05% standard deviation of the market is 3.01% covariance between the two stocks is 0.00109 covariance between the market and stock A is 0.002 Correlation Coefficient Beta (stock A) F M F M M M P M M P F P F P F M

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A) B) C) D) Question #40 of 50 Question ID: 438621 A) B) C) D) Question #41 of 50 Question ID: 438586 A) B) C) D) Question #42 of 50 Question ID: 438601 A) B) 0.6556 2.20 0.5296 2.20 0.6556 0.06 0.5296 0.06 Charlie Smith holds two portfolios, Portfolio X and Portfolio Y. They are both liquid, well-diversified portfolios with approximately equal market values. He expects Portfolio X to return 13% and Portfolio Y to return 14% over the upcoming year. Because of an unexpected need for cash, Smith is forced to sell at least one of the portfolios. He uses the security market line to determine whether his portfolios are undervalued or overvalued. Portfolio X's beta is 0.9 and Portfolio Y's beta is 1.1. The expected return on the market is 12% and the risk-free rate is 5%. Smith should sell: portfolio Y only. portfolio X only. both portfolios X and Y because they are both overvalued. either portfolio X or Y because they are both properly valued. The beta of stock D is -0.5. If the expected return of Stock D is 8%, and the risk-free rate of return is 5%, what is the expected return of the market? +3.0%. -4.0%. -1.0%. +3.5%. The assumption that returns are normally distributed means that investors: have the same horizon. only consider the mean and standard deviation of the returns.
C) D) Question #43 of 50 Question ID: 438590 A) B) C) D) Question #44 of 50 Question ID: 438609 A) B) C) D) Question #45 of 50 Question ID: 438604 are risk averse. do not need to consider transactions costs. An analyst has developed the following data for two companies, PNS Manufacturing (PNS) and InCharge Travel (InCharge). PNS has an expected return of 15 percent and a standard deviation of 18 percent. InCharge has an expected return of 11 percent and a standard deviation of 17 percent. PNS's correlation with the market is 75 percent, while InCharge's correlation with the market is 85 percent. If the market standard deviation is 22 percent, which of the following are the betas for PNS and InCharge? Beta of PNS Beta of InCharge 0.66 0.61 0.61 0.66 0.92 1.10 1.10 0.92 Portfolios that represent combinations of the risk-free asset and the market portfolio are plotted on the: capital asset pricing line. capital market line. characteristic line. utility curve. Which of the following is the vertical axis intercept for the Capital Market Line (CML)?

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A) B) C) D) Question #46 of 50 Question ID: 438618 A) B) C) D) Question #47 of 50 Question ID: 438578 A) B) C) D) Question #48 of 50 Question ID: 438611 Efficient frontier.
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