Chapter 13 connect assessment
The expected return on Cerrato, Incorporated, stock is 16.28 percent while the expected return on the market is 11.97 percent. The stock's beta is 1.63. What is the risk-free rate of return?
5.13%
Of the options listed below, which is the best measure of systematic risk?
Beta
Which one of the following statements is accurate?
Eliminating unsystematic risk is the responsibility of the individual investor.
The ________ is a positively sloped linear function that plots securities' expected returns against their betas.
security market line
What is the variance of the returns on a portfolio comprised of $4,200 of Stock G and $5,300 of Stock H?
.000000
With respect to risk, which of the following statements is accurate?
The systematic risk of a portfolio can be lowered by adding T-bills to the portfolio.
You own a portfolio equally invested in a risk-free asset and two different stocks. One of the stocks has a beta of 1.32. The total portfolio is equally as risky as the market. What is the beta of the second stock?
1.68
What is the expected return of an equally weighted portfolio comprised of the following three stocks?
10.96%
The market has an expected rate of return of 6.50 percent. A long-term government bond is expected to yield 3.4 percent and a U.S. Treasury bill is expected to yield 2.25 percent. The inflation rate is 2.15 percent. What is the market risk premium?
4.25%
The common stock of Hall & Byrd is expected to lose 5 percent in a recession, earn 7 percent in a normal economy, and earn 9 percent in a booming economy. The probability of a boom is 15 percent while the probability of a recession is 22 percent. What is the expected rate of return on this stock?
4.66%
You have a portfolio consisting solely of Stock A and Stock B. The portfolio has an expected return of 10.2 percent. Stock A has an expected return of 11.7 percent while Stock B is expected to return 8.3 percent. What is the portfolio weight of Stock A?
55.88%
Assume the capital asset pricing model holds and Stock A's beta is greater than Stock B's beta by .84. What is the expected market risk premium?
7.81%
The stock of Yakir Development has a beta of 1.31. The risk-free rate of return is 1.5 percent and the market rate of return is 8 percent. What is the risk premium on this stock?
8.5%
What is the expected return and standard deviation for the following stock?
9.616%; 3.76%
Which of the following statements are accurate? I. Non diversifiable risk is measured by beta. II. The risk premium increases as diversifiable risk increases. III. Systematic risk is another name for non-diversifiable risk. IV. Diversifiable risks are market risks you cannot avoid.
I and III only
Which of the following statements is true of a portfolio's standard deviation?
It can be less than the standard deviation of the least risky security in the portfolio.
Which of the following statements is true of a portfolio's standard deviation?
It can be less than the weighted average of the standard deviations of the individual securities held in that portfolio.
Which of the following statements best describes the principle of diversification?
Spreading an investment across many diverse assets will eliminate some of the total risk.
Assume you are an analyst monitoring Okello stock. Which one of the following would be reflected in Okello's expected return?
This morning Okello confirmed that, as expected, the CFO is retiring at the end of the year.
Assume the market rate of return is 10.1 percent and the risk-free rate of return is 3.2 percent. Lexant stock has 2 percent less systematic risk than the market and has an actual return of 10.2 percent. This stock:
is underpriced.