A) Stock Y's realized return during the coming year will be higher than Stock X's return.
B) If the expected rate of inflation increases but the market risk premium is unchanged, the required returns on the two stocks should increase by the same amount.
C) Stock Y's return has a higher standard deviation than Stock X.
D) If the market risk premium declines, but the risk-free rate is unchanged, Stock X will have a larger decline in its required return than will Stock Y.
E) If you invest $50, 000 in Stock X and $50, 000 in Stock Y, your 2-stock portfolio would have a beta significantly lower than 1.0, provided the returns on the two stocks are not perfectly correlated.
G) None of the above
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A) The SML shows the relationship between companies' required returns and their diversifiable risks.The slope and intercept of this line cannot be influenced by a firm's managers, but the position of the company on the line can be influenced by its managers.
B) Suppose you plotted the returns of a given stock against those of the market, and you found that the slope of the regression line was negative.The CAPM would indicate that the required rate of return on the stock should be less than the risk-free rate for a well-diversified investor, assuming investors expect the observed relationship to continue on into the future.
C) If investors become less risk averse, the slope of the Security Market Line will increase.
D) If a company increases its use of debt, this is likely to cause the slope of its SML to increase, indicating a higher required return on the stock.
E) The slope of the SML is determined by the value of beta.
G) A) and C)
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A) 1.68
B) 1.76
C) 1.85
D) 1.94
E) 2.04
G) A) and C)
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B) False
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A) The portfolio's expected return is 15%.
B) The portfolio's standard deviation is greater than 20%.
C) The portfolio's beta is greater than 1.2.
D) The portfolio's standard deviation is 20%.
E) The portfolio's beta is less than 1.2.
G) D) and E)
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A) The required return on the market is 10%.
B) The portfolio's required return is less than 11%.
C) If the risk-free rate remains unchanged but the market risk premium increases by 2%, Gretta's portfolio's required return will increase by more than 2%.
D) If the market risk premium remains unchanged but expected inflation increases by 2%, Gretta's portfolio's required return will increase by more than 2%.
E) If the stock market is efficient, Gretta's portfolio's expected return should equal the expected return on the market, which is 11%.
G) A) and B)
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C
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A) 17.69%
B) 18.62%
C) 19.55%
D) 20.52%
E) 21.55%
G) None of the above
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B) False
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False
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B) False
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A) 1.286
B) 1.255
C) 1.224
D) 1.194
E) 1.165
G) A) and E)
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A) 1.06
B) 1.17
C) 1.29
D) 1.42
E) 1.56
G) C) and E)
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B) False
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A) Based on the information we are given, and assuming those are the views of the marginal investor, it is apparent that the two stocks are in equilibrium.
B) Portfolio P has more market risk than Stock A but less market risk than B.
C) Stock A should have a higher expected return than Stock B as viewed by the marginal investor.
D) Portfolio P has a coefficient of variation equal to 2.5.
E) Portfolio P has a standard deviation of 25% and a beta of 1.0.
G) A) and B)
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A) The required returns on all stocks have fallen, but the fall has been greater for stocks with higher betas.
B) The average required return on the market, rM, has remained constant, but the required returns have fallen for stocks that have betas greater than 1.0.
C) Required returns have increased for stocks with betas greater than 1.0 but have declined for stocks with betas less than 1.0.
D) The required returns on all stocks have fallen by the same amount.
E) The required returns on all stocks have fallen, but the decline has been greater for stocks with lower betas.
G) None of the above
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A) 14.38%
B) 14.74%
C) 15.11%
D) 15.49%
E) 15.87%
G) All of the above
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A) The slope of the Security Market Line is beta.
B) Any stock with a negative beta must in theory have a negative required rate of return, provided rRF is positive.
C) If a stock's beta doubles, its required rate of return must also double.
D) If a stock's returns are negatively correlated with returns on most other stocks, the stock's beta will be negative.
E) 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.
G) All of the above
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A) If a stock's beta doubled, its required return under the CAPM would also double.
B) If a stock's beta doubled, its required return under the CAPM would more than double.
C) If a stock's beta were 1.0, its required return under the CAPM would be 5%.
D) If a stock's beta were less than 1.0, its required return under the CAPM would be less than 5%.
E) If a stock has a negative beta, its required return under the CAPM would be less than 5%.
G) A) and E)
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A) 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 from the "true" or "expected future" beta.
B) The beta of an "average stock, " or "the market, " can change over time, sometimes drastically.
C) Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed.
D) All of the statements above are true.
E) The fact that a security or project may not have a past history that can be used as the basis for calculating beta.
G) B) and C)
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A) company-specific risk factors that can be diversified away.
B) among the factors that are responsible for market risk.
C) risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers.
D) irrelevant except to governmental authorities like the Federal Reserve.
E) systematic risk factors that can be diversified away.
G) C) and E)
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B) False
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True
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