1. You hold a diversified portfolio consisting of a $5,000 investment in each of 20 different common stocks. The portfolio beta is equal to 1.12. You have decided to sell a lead mining stock (b = 1.00) at $5,000 net and use the proceeds to buy a like amount of a steel company stock (b = 2.00). What is the new beta of the portfolio?
(Points : 2) |
[removed] 1.1139
[removed] 1.1700
[removed] 1.2311
[removed] 1.2927
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Question 2. 2. Assume that you hold a well-diversified portfolio that has an expected return of 12.0% and a beta of 1.20. You are in the process of buying 100 shares of Alpha Corp at $10 a share and adding it to your portfolio. Alpha has an expected return of 15.0% and a beta of 2.00. The total value of your current portfolio is $9,000. What will the expected return, and beta on the portfolio, be after the purchase of the Alpha stock? 27
rp bp (Points : 2) |
[removed] 11.69%; 1.22
[removed] 12.30%; 1.28
[removed] 12.92%; 1.34
[removed] 13.56%; 1.41
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Question 3. 3. The slope of the SML is determined by the value of beta. (Points : 2) |
[removed] True
[removed] False
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Question 4. 4. In a portfolio of three different stocks, which of the following could NOT be true? (Points : 2) |
[removed] The riskiness of the portfolio is less than the riskiness of each of the stocks if they were held in isolation.
[removed] The riskiness of the portfolio is greater than the riskiness of one or two of the stocks.
[removed] The beta of the portfolio is less than the betas of each of the individual stocks.
[removed] The beta of the portfolio is greater than the beta of one or two of the individual stocks’ betas.
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Question 5. 5. Stock A’s beta is 1.5 and Stock B’s beta is 0.5. Which of the following statements must be true about these securities? (Assume market equilibrium.) (Points : 2) |
[removed] When held in isolation, Stock A has greater risk than Stock B.
[removed] Stock B must be a more desirable addition to a portfolio than Stock A.
[removed] Stock A must be a more desirable addition to a portfolio than Stock B.
[removed] The expected return on Stock A should be greater than that on Stock B.
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Question 6. 6. Which of the following is NOT a potential problem with beta and its estimation? (Points : 2) |
[removed] Sometimes a security or project does not have a past history which can be used as a basis for calculating beta.
[removed] Sometimes, during a period when the company is undergoing a change such as toward more leverage, or riskier assets, the calculated beta will be drastically different than the “true” or “expected future” beta.
[removed] The beta of “the market,” can change over time, sometimes drastically.
[removed] Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed.
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Question 7. 7. Which is the best measure of risk for an asset held in isolation, and which is the best measure for an asset held in a diversified portfolio? (Points : 2) |
[removed] Variance; correlation coefficient.
[removed] Standard deviation; correlation coefficient.
[removed] Beta; variance.
[removed] Coefficient of variation; beta.
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Question 8. 8. If the returns of two firms are negatively correlated, then one of them must have a negative beta. (Points : 2) |
[removed] True
[removed] False
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Question 9. 9. The CAPM is a multi-period model which takes account of differences in securities’ maturities, and it can be used to determine the required rate of return for any given level of systematic risk. (Points : 2) |
[removed] True
[removed] False
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Question 10. 10. Which of the following statements is CORRECT? (Points : 2) |
[removed] “Characteristic line” is another name for the Security Market Line.
[removed] The characteristic line is the regression line that results from plotting the returns on a particular stock versus the returns on a stock from a different industry.
[removed] The slope of the characteristic line is the stock’s standard deviation.
[removed] The distance of the plot points from the characteristic line is a measure of the stock’s diversifiable risk. |
neel
12 years ago
