Business Finance

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.

B provides a risk-return trade off in which risk is measured in terms of beta.

Investment A has an expected return of 15% per year, while investment B has an expected return of 12% per year. A rational investor will choose a. investment a bc of the higher expected return b. investment b bc a lower return means lower risk c. investment a if a and b are of equal risks d. investment a only if the standard deviation of returns for a is higher than the standard deviation of returns for b

C. investment a if a and b are of equal risk

SeeBreeze Incorporated has a beta of 1.0. If the expected return on the market is 15%, what is the expected return on SeeBreeze Incorporated's stock? a. 15% b. 14% c. 18% d. cannot be determined without the risk free rate

a 15$

Stanley Corp. common stock has a required return of 17.5% and a beta of 1.75. If the expected risk free return is 3%, what is the expected return for the market based on the CAPM? a. 11.29% b. 14.29% c .13.35% d. 15.27%

a. 11.29%

Stock A has a beta of 1.2 and a standard deviation of returns of 18%. Stock B has a beta of 1.8 and a standard deviation of returns of 18%. If the market risk premium increases, then a. the required return on stock B will increase more than the required return on stock A. b. the required returns on stocks A and B will both increase by the same amount. c. the required returns on stocks A and B will remain the same. d. the required return on stock A will increase more than the required return on stock B.

a. the required return on stock B will increase more than the required return on stock A.

Which of the following types of risk is diversifiable? a. unsystematic, or company-unique risk b. betagenic/economic risk c. systematic risk d. market risk

a. unsystematic, or company-unique risk

Assume that an investment is forecasted to produce the following returns: a 10% probability of a $1,400 return; a 50% probability of a $6,600 return; and a 40% probability of a $10,500 return. What is the expected amount of return this investment will produce? a. $6,167 b.$7,640 c. $12,890 d. $18,500

b. $7,640

Your stock portfolio has two stocks with the following proportions: Stock A - 20% of the investment; Beta for stock A = 1.4 Stock B - 80% of the investment; Beta for stokc B = 0.9 What is the beta of the portfolio? a. 1.15 b.1.00 c. 1.26 d. 1.56

b. 1.00

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.

b. provides a risk-return trade off in which risk is measured in terms of beta.

The prices for the Electric Circuit Corporation for the first quarter of 2009 are given below. The price of the stock on January 1, 2009 was $130. Find the holding period return for an investor who purchased the stock on January 1, 2009 and sold it the last day of March 2009. a. -4.2% b. -3.7% c. 2.1% d. 3.7%

c. 2.1%

Assume that an investment is forecasted to produce the following returns: a 20% probability of a 12% return; a 50% probability of a 16% return; and a 30% probability of a 19% return. What is the standard deviation of return for this investment? a. 5.89% b. 16.1% c. 2.43% d. 15.7%

c. 2.43%

What is diversifying among different kinds of assets known as? a. Portfolio funding b. Capital asset classification c. Asset allocation d. Multi-diversification

c. Asset allocation

Portfolio risk is typically measured by ________ while the risk of a single investment is measured by ________. a. standard deviation; beta b. security market line; standard deviation c. beta; standard deviation d. beta; slope of the characteristic line

c. beta; standard deviation

Emery Inc. has a beta equal to 1.8 and a required return of 15% based on the CAPM. If the market risk premium is 7.5%, the risk-free rate of return is: a. 4.1%. b. 3.4%. c. 2.0%. d. 1.5%

d 1.5%

Your stock portfolio has two stocks with the following proportions: Stock A - 70% of the investment; Beta for stock A = 1.4 Stock B - 30% of the investment; Beta for stokc B = 0.9 What is the beta of the portfolio? a. 1.15 b. 1.00 c. 1.25 d. 0.98

d. .98

Collectibles Corp. has a beta of 2.5 and a standard deviation of returns of 20%. The return on the market portfolio is 15% and the risk free rate is 4%. What is the risk premium on the market? a. 5% b. 6% c. 9.00% d. 11%

d. 11%

Which of the following measures the average relationship between a stock's returns and the market's returns? a. Coefficient of validation b. Standard deviation c. Geometric regression d. Beta coefficient

d. Beta coefficient

Of the following different types of securities, which is typically considered most risky? a. Long term corporate bonds b. Long term government bonds c. Common stocks of large companies d.Common stocks of small companies

d. Common stocks of small companies

Of the following different types of securities, which is typically considered most risky? a. Long term corporate bonds b. Long term government bonds c. Common stocks of large companies d. Common stocks of small companies

d. Common stocks of small companies

The beta of ABC Co. stock is the slope of: a. The security market line. b. The characteristic line for a plot of returns on the S&P 500 versus returns on short-term Treasury bills. c. The arbitrage pricing line. d. The characteristic line for a plot of ABC Co. returns against the returns of the market portfolio for the same period.

d. The characteristic line for a plot of ABC Co. returns against the returns of the market portfolio for the same period.

Beginning with an investment in one company's securities, as we add securities of other companies to our portfolio, which type of risk declines? a. Systematic risk b. Market risk c. Non-diversifiable risk d. Unsystematic risk

d. Unsystematic risk

The appropriate measure for risk according to the capital asset pricing model is: a.the standard deviation of a firm's cash flows. b. alpha. c. the standard deviation of a firm's stock returns. d. beta

d. beta

Which of the following is the slope of the security market line? a. beta b. one c. it varies, and is steeper for riskier securities d. the market risk premium

d. the market risk premium

Beginning with an investment in one company's securities, as we add securities of other companies to our portfolio, which type of risk declines? a. systematic risk b. market risk c. non-diversifiable risk d. unsystematic risk

d. unsystematic risk

The beta of ABC Co. stock is the slope of: a. The security market line. b. The characteristic line for a plot of returns on the S&P 500 versus returns on short-term Treasury bills. c. The arbitrage pricing line. d.The characteristic line for a plot of ABC Co. returns against the returns of the market portfolio for the same period.

d.The characteristic line for a plot of ABC Co. returns against the returns of the market portfolio for the same period.