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Which of the following would occur if the market risk premium increased 1. Stock A has a beta of 1.2 and a standard deviation of 20%. Stock B has a beta of 0.8 and a standard deviation of 25%. Portfolio P has $200,000 consisting of $100,000 invested in Stock A and $100,000 in Stock B. Which of the following statements is CORRECT? (Assume that the stocks are in equilibrium.) a. Stock A's returns are less highly correlated with the ret ...

Other / Other 16 Apr 2016

Which of the following statements must be true, according to the CAPM 1. Which of the following statements is CORRECT? a. The beta of a portfolio of stocks is always smaller than the betas of any of the individual stocks. b. If you found a stock with a zero historical beta and held it as the only stock in your portfolio, you would by definition have a riskless portfolio. c. The beta coefficient of a stock is normally found by regressin ...

Other / Other 16 Apr 2016

The probability distribution of the sample mean 1. The probability distribution of the sample mean is called the a. central probability distribution b. sampling distribution of the mean c. random variation d. standard error e. None of the above answers is correct. 2. The expected value of the random variable is a.  b. the standard error c. the sample size d. the size of the population e. None of the abo ...

Other / Other 16 Apr 2016

For markets to be in equilibrium, that is, for there to be no strong pressure 1. Which of the following statements is CORRECT? a. If a stock has a beta of to 1.0, its required rate of return will be unaffected by changes in the market risk premium. b. The slope of the Security Market Line is beta. c. Any stock with a negative beta must in theory have a negative required rate of return, provided rRF is positive. d. If a stock's beta do ...

Other / Other 16 Apr 2016

A simple random sample from an infinite population 1. A population consists of 500 elements. We want to draw a simple random sample of 50 elements from this population. On the first selection, the probability of an element being selected is a. 0.100 b. 0.010 c. 0.001 d. 0.002 e. None of the above answers is correct. 2. The closer the sample mean is to the population mean, a. the larger the sampling error b. the sma ...

Other / Other 16 Apr 2016

Assume that the current corporate bond yield curve is upward sloping 1. Which of the following statements is CORRECT? a. The yield to maturity for a coupon bond that sells at a premium consists entirely of a positive capital gains yield; it has a zero current interest yield. b. The market value of a bond will always approach its par value as its maturity date approaches. This holds true even if the firm has filed for bankruptcy. c. ...

Other / Other 16 Apr 2016

Inflation, recession, and high interest rates are economic events 1. You have the following data on (1) the average annual returns of the market for the past 5 years and (2) similar information on Stocks A and B. Which of the possible answers best describes the historical betas for A and B? Years Market Stock A Stock B 1 0.03 0.16 0.05 2 -0.05 0.20 0.05 3 0.01 0.18 0.05 4 -0.10 0.25 0.05 5 0.06 0.14 0.05 a. bA > 0; bB = ...

Other / Other 16 Apr 2016

The sample mean is the point estimator 1. A population consists of 8 items. The number of different simple random samples of size 3 that can be selected from this population is a. 24 b. 56 c. 512 d. 128 e. None of the above answers is correct. 2. In point estimation a. data from the population is used to estimate the population parameter b. data from the sample is used to estimate the population parameter c. data ...

Other / Other 16 Apr 2016

A highly risk-averse investor is considering adding one additional stock 1. You have the following data on three stocks: Stock Standard Deviation Beta A 20% 0.59 B 10% 0.61 C 12% 1.29 If you are a strict risk minimizer, you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio. a. A; A. b. A; B. c. B; A. d. C; A. e. C; B. 2. Which is the be ...

Other / Other 16 Apr 2016

Portfolio P has equal amounts invested 1. Stock A has a beta of 0.8, Stock B has a beta of 1.0, and Stock C has a beta of 1.2. Portfolio P has equal amounts invested in each of the three stocks. Each of the stocks has a standard deviation of 25%. The returns on the three stocks are independent of one another (i.e., the correlation coefficients all equal zero). Assume that there is an increase in the market risk premium, but the risk-fr ...

Other / Other 16 Apr 2016