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1 | |
A stock has an expected return of 15 percent. The market risk premium is 10 percent and the risk-free rate is 4 percent. What is the stock's beta? |
| | A) | 0.50 |
| | B) | 0.75 |
| | C) | 1.1 |
| | D) | 1.8 |
| | E) | 2.0 |
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2 | |
A stock has an expected return of 11.98 percent and a beta of 1.05. The risk-free rate is 4 percent. What is the market risk premium? |
| | A) | 1.7 percent |
| | B) | 5.7 percent |
| | C) | 7.6 percent |
| | D) | 10.2 percent |
| | E) | 11.6 percent |
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3 | |
What is the beta of a portfolio that is invested 25 percent in the market portfolio, 25 percent in an asset with twice as much systematic risk as the market portfolio and the rest in a risk-free asset? |
| | A) | 0.25 |
| | B) | 0.50 |
| | C) | 0.75 |
| | D) | 1.00 |
| | E) | 1.25 |
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4 | |
You hold three stocks in your portfolio: stock A, stock B, and stock C. The portfolio beta is 1.50. Stock A constitutes 20 percent of the dollar value of your holdings and has a beta of 1.0. If you sell all of your investment in A and invest the proceeds in a risk-free asset, your new portfolio beta will be: |
| | A) | 0.850. |
| | B) | 1.200. |
| | C) | 1.300. |
| | D) | 1.550. |
| | E) | 1.625. |
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5 | |
Asset A has a reward-to-risk ratio of .075 and a beta of 1.5. The risk-free rate is 5 percent. What is the expected return on A? |
| | A) | 11.25 percent |
| | B) | 12.25 percent |
| | C) | 13.50 percent |
| | D) | 14.25 percent |
| | E) | 16.25 percent |
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6 | |
You own two risky assets, both of which plot on the security market line. Asset A has an expected return of 12 percent and a beta of .8. Asset B has an expected return of 18 percent and a beta of 1.4. If your portfolio beta is the same as the market portfolio, how much of your portfolio is invested in Asset A? |
| | A) | 33.33 percent |
| | B) | 50.00 percent |
| | C) | 66.67 percent |
| | D) | 133.00 percent |
| | E) | 167.00 percent |
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7 | |
Assume that the risk-free rate is 7 percent, the beta of stock A is 1.2, the beta of stock B is 0.8, the expected return on stock A is 13.5 percent, and the expected return on stock B is 11.0 percent. Also assume that stock A is fairly priced and the betas of stocks A and B are accurate. Given these assumptions, which one of the following statements is correct? |
| | A) | Stock B is also fairly priced. |
| | B) | The expected return on stock B is too high. |
| | C) | The expected return on stock A is too high. |
| | D) | The price of stock B is too high. |
| | E) | The price of stock A is too high. |
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8 | |
Asset A, which has an expected return of 12 percent and a beta of .8, plots on the security market line. The market risk premium is 10 percent. Which one of the following statements is NOT correct about asset B, another risky asset with a beta of 1.4? |
| | A) | If the market is in equilibrium, asset B also plots on the security market line. |
| | B) | If asset B plots on the security market line, then asset B and asset A have the same reward- to-risk ratio. |
| | C) | Asset B has more systematic risk than both asset A and the market portfolio. |
| | D) | If asset B plots on the security market line and has an expected return of 18 percent, then the risk-free rate must be 4 percent. |
| | E) | If asset B plots on the security market line and has an expected return of 18 percent, the expected return on the market must be 15 percent. |
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9 | |
You have a portfolio which consists of two risky assets and a risk-free asset. You invest 40 percent in asset A with a beta of 1.25 and 40 percent in asset B with a beta of 1.15. What is the portfolio beta? |
| | A) | 0.84 |
| | B) | 0.96 |
| | C) | 1.03 |
| | D) | 1.12 |
| | E) | 1.20 |
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10 | |
Security X has a standard deviation of returns of 35 percent and a beta of 1.45. Security Y has a standard deviation of returns of 28 percent and a beta of 1.06. Security Z has a standard deviation of returns of 44 percent and a beta of 1.22. Given this, which one of the following statements is correct? |
| | A) | Security Z has the greatest total risk because it has the largest standard deviation. |
| | B) | Security X has the greatest total risk because it has the largest beta. |
| | C) | Security X has the greatest diversifiable risk because it has the largest beta. |
| | D) | Security Y has the lowest total risk because it has the lowest beta. |
| | E) | An equally weighted portfolio of the three will have the same systematic risk as the market portfolio. |
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