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Exam 11: Risk and Return

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Question 21

Multiple Choice

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Unsystematic risk is defined as the risk:

A) that applies to an individual's portfolio
B) that affects a small number of securities
C) that affects the entire market
D) associated with unexpected events of any nature
E) derived solely from expected events

F) C) and E)
G) C) and D)

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Question 22

Multiple Choice

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A stock has a beta of 1.24,an expected return of 13.68 per cent,and lies on the security market line.A risk-free asset is yielding 2.8 per cent.You want to create a $6,000 portfolio consisting of Stock A and the risk-free security such that the portfolio beta is 0.65.What rate of return should you expect to earn on your portfolio?

A) 9.56 per cent
B) 8.50 per cent
C) 9.16 per cent
D) 9.33 per cent
E) 9.41 per cent

F) B) and E)
G) C) and D)

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Question 23

Multiple Choice

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Based on the capital asset pricing model,a security that:

Bondi Beachwear has an expected return of 12.9 per cent and a beta of 1.21.The expected return on the market is 11.7 per cent.What is the risk-free rate?

You own a portfolio equally invested in a risk-free asset and two stocks.If one of the stocks has a beta of 1.04 and the total portfolio is equally as risky as the market,what must the beta be for the other stock in your portfolio?

The market risk premium is the:

Diversifying a portfolio across various sectors and industries might do more than one of the following.However,this diversification must do which one of the following?

Northern Wear stock has an expected return of 14.6 per cent.Given the information below,what is the expected return on this stock if the economy is normal?

What is the expected return on a security given the following information?

The beta of a risk-free security is _____ and the beta of the overall market is:

If the reward-to-risk ratio of a security is greater than that supported by the security market line,then the security:

Total risk is:

Mary owns a risky stock and anticipates earning 16.5 per cent on her investment in that stock.Which one of the following best describes the 16.5 per cent rate?

Which one of the following is the best definition of the term 'expected return' as it applies to the concept of risk and return?

Which one of the following is considered an example of systematic risk?

The systematic risk principle states that the expected return on a risky asset depends only on which one of the following?

Portfolio diversification eliminates which one of the following?

Diversifiable risk is interchangeable with which term?

Which one of the following terms best refers to the practice of investing in a variety of diverse assets as a means of reducing risk?

Stock J has a beta of 1.17 and an expected return of 14.4 per cent,while Stock K has a beta of 0.68 and an expected return of 7.6 per cent.You want a portfolio with the same risk as the market.What is the expected return of your portfolio?