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5 points

Which is the best measure of risk for a single asset held in isolation, and whic h is the best measure for an asset held in a diversified portfolio? Answer

Selected Answer: d. Coefficient of variation; beta.

Correct Answer: d. Coefficient of variation; beta.

. Question 2 . 0.5 out of 0.5 points

Which of the following is NOT a potential problem when estimating and using beta s, i.e., which statement is FALSE? Answer

Selected Answer: c. The beta of an "average stock," or "the market," can change over time, someti mes drastically.

Correct Answer: c. The beta of an "average stock," or "the market," can change over time, someti mes drastically.

. Question 3 . 0.5 out of 0.5 points

Which of the following statements is CORRECT? Answer

Selected Answer: e. An investor can eliminate virtually all diversifiable risk if he or she holds

a very large, well diversified portfolio of stocks.

Correct Answer: e. An investor can eliminate virtually all diversifiable risk if he or she holds a very large, well diversified portfolio of stocks.

. Question 4 . 0.5 out of 0.5 points

Stock A's beta is 1.5 and Stock B's beta is 0.5. Which of the following statemen ts must be true about these securities? (Assume market equilibrium.) Answer

Selected Answer: d. The expected return on Stock A should be greater than that on B.

Correct Answer: d. The expected return on Stock A should be greater than that on B.

.

Question 5 . 0.5 out of 0.5 points

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, rM ? rRF, is positive. Which of the following state ments is CORRECT? Answer

Selected Answer: c. If Stock A's required return is 11%, then the market risk premium is 5%.

Correct Answer: c. If Stock A's required return is 11%, then the market risk premium is 5%.

. Question 6 . 0.5 out of 0.5 points

Which of the following statements is CORRECT? Answer

Selected Answer: b. A portfolio that consists of 40 stocks that are not highly correlated with "t he market" will probably be less risky than a portfolio of 40 stocks that are hi ghly correlated with the market, assuming the stocks all have the same standard deviations.

Correct Answer: b. A portfolio that consists of 40 stocks that are not highly correlated with "t he market" will probably be less risky than a portfolio of 40 stocks that are hi ghly correlated with the market, assuming the stocks all have the same standard deviations.

. Question 7 . 0.5 out of 0.5 points

Taggart Inc.'s stock has a 50% chance of producing a 25% return, a 30% chance of producing a 10% return, and a 20% chance of producing a -28% return. What is th e firm's expected rate of return? Answer

Selected Answer: c. 9.90%

Correct Answer: c. 9.90%

. Question 8 . 0.5 out of 0.5 points

Cooley Company's stock has a beta of 1.40, the risk-free rate is 4.25%, and the market risk premium is 5.50%. What is the firm's required rate of return? Answer

Selected Answer: c. 11.95%

Correct Answer: c. 11.95%

. Question 9 . 0.5 out of 0.5 points

For a portfolio of 40 randomly selected stocks, which of the following is most l ikely to be true? Answer

Selected Answer: d. The beta of the portfolio is equal to the average of the betas of the individ ual stocks.

Correct Answer: d. The beta of the portfolio is equal to the average of the betas of the individ ual stocks.

. Question 10 . 0.5 out of 0.5 points

Bill Dukes has $100,000 invested in a 2-stock portfolio. $35,000 is invested in Stock X and the remainder is invested in Stock Y. X's beta is 1.50 and Y s beta is 0.70. What is the portfolio's beta? Answer

Selected Answer: e. 0.98

Correct Answer: e. 0.98

. Question 11 . 0.5 out of 0.5 points

Which of the following statements is CORRECT? (Assume that the risk-free rate is a constant.) Answer

Selected Answer: d. If the market risk premium increases by 1%, then the required return will inc rease by 1% for a stock that has a beta of 1.0.

Correct Answer: d. If the market risk premium increases by 1%, then the required return will inc rease by 1% for a stock that has a beta of 1.0.

. Question 12 . 0.5 out of 0.5 points

Inflation, recession, and high interest rates are economic events that are best characterized as being Answer

Selected Answer: c. among the factors that are responsible for market risk.

Correct Answer: c. among the factors that are responsible for market risk.

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