Level of difficulty 3 learning goal 5 topic portfolio

Level of Difficulty: 3
Learning Goal: 5
Topic: Portfolio Beta (Equation 5.7)
5aw. The higher an asset’s beta,
(a) the more responsive it is to changing market returns.
(b) the less responsive it is to changing market returns.
(c) the higher the expected return will be in a down market.
(d) the lower the expected return will be in an up market.
Answer: A
Level of Difficulty: 3
Learning Goal: 5
Topic: Beta and Systematic Risk
52. An increase in nondiversifiable risk
Level of Difficulty: 3
Learning Goal: 5

Topic: Beta and Systematic Risk
53. An increase in the Treasury Bill rate _________ the required rate of return of a common stock.
Level of Difficulty: 3
Learning Goal: 5
Topic: Capital Asset Pricing Model (CAPM)
238 Gitman • Principles of Finance, Eleventh Edition
54. An example of an external factor that affects a corporation’s risk or beta, and hence required rate of
return would be
Level of Difficulty: 3
Learning Goal: 5
Topic: Beta and Systematic Risk
55. The beta of a portfolio is
(a) the sum of the betas of all assets in the portfolio.
(b) irrelevant, only the betas of the individual assets are important.
(c) does not change over time.
(d) is the weighted average of the betas of the individual assets in the portfolio.
Answer: D
Level of Difficulty: 3
Learning Goal: 5

Topic: Portfolio Beta
You are going to invest $20,000 in a portfolio consisting of assets X, Y, and Z, as follows:
Table 5.2
Asset
Annual
Return Probability Beta Proportion
X aw0% 0.50 aw.2 0.333
Y 8% 0.25 aw.6 0.333
Z aw6% 0.25 2.0 0.333
56. Given the information in Table 5.2, what is the expected annual return of this portfolio?