CH.13 HW

The common stock of Flavorful Teas has an expected return of 14.82 percent. The return on the market is 13 percent and the risk-free rate of return is 3.9 percent. What is the beta of this stock?

1.20

The expected return on HiLo stock is 14.80 percent while the expected return on the market is 13.8 percent. The beta of HiLo is 1.27. What is the risk-free rate of return?

10.10%

There is 6 percent probability of recession, 19 percent probability of a poor economy, 49 percent probability of a normal economy, and 26 percent probability of a boom. A stock has returns of −18.8 percent, 2.4 percent, 10.2 percent, and 25.9 percent in these states of the economy, respectively. What is the stock's expected return?

11.06%

You have a portfolio worth $63,500 that has an expected return of 13.3 percent. The portfolio has $16,900 invested in Stock O, $24,700 invested in Stock P, with the remainder in Stock Q. The expected return on Stock O is 18.1 percent and the expected return on Stock P is 11.3 percent. What is the expected return on Stock Q?

11.85%

You recently purchased a stock that is expected to earn 12 percent in a booming economy, 6.5 percent in a normal economy, and lose 1.5 percent in a recessionary economy. The probability of a booming economy is 14 percent while the probability of a normal economy is 65 percent. What is your expected rate of return on this stock?

5.59%

You own a portfolio that has $1,720 invested in Stock A and $3,470 invested in Stock B. The expected returns on these stocks are 13.7 percent and 8.0 percent, respectively. What is the expected return on the portfolio?

9.89%

Of the options listed below, which is the best example of a diversifiable risk?

A firm's sales decrease *A firm's sales decrease is the best example of diversified risk. Diversifiable risk something which is related to a specific product or security, so that risk is limitted to that extent only.

Of the options listed below, which is the best measure of systematic risk?

Beta

Which of the following statements regarding unsystematic risk is accurate?

It can be effectively eliminated by portfolio diversification.

When calculating the expected rate of return on a stock portfolio using a weighted average, the weights are based on the:

market value of the investment in each stock.

Rafia owns stocks of 15 different companies. Together, the stocks have a value of $78,640. Twelve percent of that total value is from one company, Gambrell & Valdez. The twelve percent figure is called a(n):

portfolio weight. *Portfolio weight is the percentage of an investment portfolio that a particular holding or type of holding comprises.

The ________ is the excess return earned by a risky asset over the return earned by a risk-free asset.

risk premium

To calculate the expected risk premium on a stock, one must subtract the ________ from the stock's expected return.

risk-free rate