Risk and Return
Which of the following statements is CORRECT?
A portfolio that consists of 40 stocks that are not highly correlated with "the market" will probably be less risky than a portfolio of 40 stocks that are highly correlated with the market.
Assume that the risk-free rate is 5%. Which of the following statements is correct?
If a stock has a negative beta, its required return would be less than 5%.
Stock A has a beta of 1.5 and Stock B has a beta of 0.5. Which of the following statements must be true about these securities? (Assume the market is in equilibrium.)
In equilibrium, the expected return on Stock A will be greater than that on Stock B.
Which of the following statements is CORRECT?
The SML relates its required return to a firm's market risk. The slope and intercept of this line cannot be controlled by the financial manager.
In the next year, the market risk premium, (rM - rRF), is expected to fall, while the risk-free rate, rRF, is expected to remain the same. Given this forecast, which of the following statements is CORRECT?
The required return will fall for all stocks, but it will fall more for stocks with higher betas.
Which of the following statements is CORRECT?
The slope of the security market line is measured by beta.
A portfolio that consists of 40 stocks that are not highly correlated with "the market" will probably be less risky than a portfolio of 40 stocks that are highly correlated with the market.
Your portfolio has a beta equal to 1.6 and its expected return is 15%.
Your portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y. Both stocks have an expected return of 15%, a beta of 1.6, and a standard deviation of 30%. The returns of the two stocks are independent, so the correlation coefficient between them, rxy, is zero. Which of the following statements best describes the characteristics of your portfolio?
Your portfolio has a standard deviation of 30% and its expected return is 15%. (No) Your portfolio has a standard deviation greater than 30% and a beta equal to 1.6. Your portfolio has a beta equal to 1.6 and its expected return is 15%. Your portfolio has a standard deviation less than 30% and its beta is greater than 1.6. Your portfolio has a beta greater than 1.6 and an expected return greater than 15%.
Inflation, recession, and high interest rates are economic events that are best characterized as being
factors associated with market risk.
