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1 | |
When the overall market is up by 15%, an investor with a portfolio of defensive stocks will probably have: |
| | A) | positive portfolio returns greater than 15% |
| | B) | positive portfolio returns less than 15% |
| | C) | negative portfolio returns greater than 15% |
| | D) | negative portfolio returns less than 15% |
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2 | |
What is the beta of a three-stock portfolio including 20% of Stock A with a beta of 1.25, 30% Stock B with a beta of 1.15, and 50% with a beta of 1.20? |
| | A) | 1.195 |
| | B) | 1.020 |
| | C) | 1.200 |
| | D) | 1.895 |
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3 | |
What is the expected yield on the market portfolio at a time when Treasury bills yield 5% and a stock with a beta of 1.20 is expected to yield 18%? |
| | A) | 6.12% |
| | B) | 15.83% |
| | C) | 18.53% |
| | D) | 21.50% |
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4 | |
An investor was expecting a 10% return on his portfolio with a beta of 1.15 before the market risk premium increased from 5% to 7.5%. Based on this change, what return will now be expected on the portfolio? |
| | A) | 10.000% |
| | B) | 12.875% |
| | C) | 14.975% |
| | D) | 16.245% |
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5 | |
What is the beta of a portfolio with an expected return of 15% if Treasury bills yield 7% and the market risk premium is 7%? |
| | A) | 1.00 |
| | B) | 1.14 |
| | C) | 1.86 |
| | D) | 2.00 |
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6 | |
What happens to an expected portfolio return if the portfolio beta increases from 1.2 to 2.0, the risk-free rate decreases from 7.5% to 5% and the market risk premium remains at 9%? |
| | A) | It decreases from 23% to 18.3% |
| | B) | It decreases from 28% to 13.3% |
| | C) | It increases from 18.3% to 23% |
| | D) | It increases from 13.3% to 28% |
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7 | |
An investor divides his/her portfolio evenly between Treasury bills, a market index and a diversified portfolio with a beta of 1.25. What is the beta of the investor's overall portfolio? |
| | A) | .25 |
| | B) | .50 |
| | C) | .75 |
| | D) | 1.00 |
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8 | |
A project is determined to have equal probability of generating $1 million annually or $250,000 annually for four years. The initial outlay is $2 million. The expected return on Treasury bills is 6% and the market risk premium is 7%. What is the highest project beta that will justify acceptance of the project? |
| | A) | 0.42 |
| | B) | 0.51 |
| | C) | 0.71 |
| | D) | 1.42 |
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9 | |
The CAPM provides a model of determining expected security returns that is: |
| | A) | excellent for high beta stocks |
| | B) | excellent for well-diversified stocks |
| | C) | imprecise, but generally an acceptable guideline |
| | D) | precise in its calculation of risk premiums |
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10 | |
If the line measuring a stock's historic returns against the market's historic returns has a slope greater than 1.0, then the: |
| | A) | stock is currently under priced. |
| | B) | market risk premium is increasing. |
| | C) | stock has a significant amount of unique risk. |
| | D) | stock has a beta exceeding 1.0. |
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11 | |
If you were willing to bet that the overall stock market was heading up on a sustained basis, it would be logical to invest in: |
| | A) | high beta stocks. |
| | B) | low beta stocks. |
| | C) | stocks with large amounts of unique risk. |
| | D) | stocks that plot below the security market line. |
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12 | |
What is the beta of a three-stock portfolio including 25% of Stock A with a beta of .90, 40% Stock B with a beta of 1.05, and 35% Stock C with a beta of 1.73? |
| | A) | 1.05 |
| | B) | 1.17 |
| | C) | 1.22 |
| | D) | 1.25 |
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13 | |
What will happen to the expected return on a stock with a beta of 1.5 and a market risk premium of 9% if the Treasury bill yield increases from 3% to 5%? |
| | A) | The expected return will remain unchanged. |
| | B) | The expected return will increase by 1.0%. |
| | C) | The expected return will increase by 2.0%. |
| | D) | The expected return will increase by 3.0%. |
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14 | |
An investor was expecting an 18% return on his portfolio with beta of 1.25 before the market risk premium increased from 8% to 10%. Based on this change, what return will now be expected on the portfolio? |
| | A) | 20.0% |
| | B) | 20.5% |
| | C) | 22.5% |
| | D) | 26.0% |
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15 | |
The company cost of capital may be an inappropriate discount rate for a capital budgeting proposal if: |
| | A) | it calculates a negative NPV for the proposal. |
| | B) | the proposal has a different degree of risk. |
| | C) | the company has unique risk. |
| | D) | the company expects to earn more than the risk-free rate. |
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