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Exam 11: Risk and Return

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Question 21

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A portfolio is comprised of 35 securities with varying betas.The lowest beta for an individual security is .74 and the highest of the security betas of 1.51.Given this information,you know that the portfolio beta:

A) must be 1.0 because of the large number of securities in the portfolio.
B) is the geometric average of the individual security betas.
C) must be less than the market beta.
D) will be between 0 and 1.0.
E) will be greater than or equal to .74 but less than or equal to 1.51.

F) A) and D)
G) A) and B)

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Question 22

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Which one of these represents systematic risk?

A) Major layoff by a regional manufacturer of power boats
B) Increase in consumption created by a reduction in personal tax rates
C) Surprise firing of a firm's chief financial officer
D) Closure of a major retail chain of stores
E) Product recall by one manufacturer

F) A) and B)
G) C) and E)

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Question 23

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The beta of a risky portfolio cannot be less than nor greater than _.

A portfolio is:

Portfolio diversification eliminates:

A stock is expected to return 13 percent in an economic boom,10 percent in a normal economy,and 3 percent in a recessionary economy.Which one of the following will lower the overall expected rate of return on this stock?

The addition of a risky security to a fully diversified portfolio:

Which one of the following is the vertical intercept of the security market line?

Given the following information,what is the standard deviation of the returns on a portfolio that is invested 35 percent in both Stocks A and C,and 30 percent in Stock B?

Which one of these is the best example of systematic risk?

Bruno's stock should return 14 percent in a boom,11 percent in a normal economy,and 4 percent in a recession.The probabilities of a boom,normal economy,and recession are 8 percent,90 percent,and 2 percent,respectively.What is the variance of the returns on this stock?

Assume you own a portfolio of diverse securities which are each correctly priced.Given this,the reward-to-risk ratio:

The systematic risk principle states that the expected return on a risky asset depends only on the asset? s risk.

The amount of systematic risk present in a particular risky asset relative to that in an average risky asset is measured by the:

Standard deviation measures risk while beta measures risk.

Which one of the following portfolios will have a beta of zero?

The capital asset pricing model:

Which statement is true?

Westover stock is expected to return 36 percent in a boom,14 percent in a normal economy,and lose 75 percent in a recession.The probabilities of a boom,normal economy,and a recession are 2 percent,93 percent,and 5 percent,respectively.What is the standard deviation of the returns on this stock?