Question 1

Which of the following statements is CORRECTσ

Accepted Answer

A)   a portfolio with a large number of randomly selected stocks would have more market risk than a single stock that has a beta of 0.5, assuming that the stock's beta was correctly calculated and is stable.
B)   if a stock has a negative beta, its expected return must be negative.
C)   a portfolio with a large number of randomly selected stocks would have less market risk than a single stock that has a beta of 0.5.
D)   according to the capm, stocks with higher standard deviations of returns must also have higher expected returns.
E)   if the returns on two stocks are perfectly positively correlated (i.e., the correlation coefficient is +1.0)  and these stocks have identical standard deviations, an equally weighted portfolio of the two stocks will have a standard deviation that is less than that of the individual stocks.F) All of the above
G) A) and D)

Question 2

Assume that two investors each hold a portfolio, and that portfolio is their only asset. Investor A's portfolio has a beta of minus 2.0, while Investor B's portfolio has a beta of plus 2.0. Assuming that the unsystematic risks of the stocks in the two portfolios are the same, then the two investors face the same amount of risk. However, the holders of either portfolio could lower their risks, and by exactly the same amount, by adding some "normal" stocks with beta = 1.0.

Accepted Answer

A) True 
 B)False

Question 3

If the returns of two firms are negatively correlated, then one of them must have a negative beta.

Accepted Answer

A) True 
 B)False

Question 4

Ann has a portfolio of 20 average stocks, and Tom has a portfolio of 2 average stocks. Assuming the market is in equilibrium, which of the following statements is CORRECTσ

Accepted Answer

A)   the required return on ann's portfolio will be lower than that on tom's portfolio because ann's portfolio will have less total risk.
B)   tom's portfolio will have more diversifiable risk, the same market risk, and thus more total risk than ann's portfolio, but the required (and expected)  returns will be the same on both portfolios.
C)   if the two portfolios have the same beta, their required returns will be the same, but ann's portfolio will have less market risk than tom's.
D)   the expected return on jane's portfolio must be lower than the expected return on dick's portfolio because jane is more diversified.
E)   ann's portfolio will have less diversifiable risk and also less market risk than tom's portfolio.F) None of the above
G) A) and E)

Question 5

Which of the following statements is CORRECTσ

Accepted Answer

A)   lower beta stocks have higher required returns.
B)   a stock's beta indicates its diversifiable risk.
C)   diversifiable risk cannot be completely diversified away.
D)   two securities with the same stand-alone risk must have the same betas.
E)   the slope of the security market line is equal to the market risk premium.F) A) and B)
G) B) and D)

Question 6

If you plotted the returns on a given stock against those of the market, and if you found that the slope of the regression line was negative, the CAPM would indicate that the required rate of return on the stock should be greater than the risk-free rate for a well-diversified investor, assuming that the observed relationship is expected to continue into the future.

Accepted Answer

A) True 
 B)False

Question 7

Any change in its beta is likely to affect the required rate of return on a stock, which implies that a change in beta will likely have an impact on the stock's price, other things held constant.

Accepted Answer

A) True 
 B)False

Exam 2: Risk and Return-Part I

If the returns of two firms are negatively correlated, then one of them must have a negative beta.

Correct Answer
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Which of the following statements is CORRECTσ

Correct Answer
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Correct Answer
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Any change in its beta is likely to affect the required rate of return on a stock, which implies that a change in beta will likely have an impact on the stock's price, other things held constant.

Correct Answer
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Ann has a portfolio of 20 average stocks, and Tom has a portfolio of 2 average stocks. Assuming the market is in equilibrium, which of the following statements is CORRECTσ

Correct Answer
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Which of the following statements is CORRECTσ

Correct Answer
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Correct Answer
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Exam 2: Risk and Return-Part I

If the returns of two firms are negatively correlated, then one of them must have a negative beta.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECTσ

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Any change in its beta is likely to affect the required rate of return on a stock, which implies that a change in beta will likely have an impact on the stock's price, other things held constant.

Correct AnswerverifiedShow Answer

Ann has a portfolio of 20 average stocks, and Tom has a portfolio of 2 average stocks. Assuming the market is in equilibrium, which of the following statements is CORRECTσ

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECTσ

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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