|Due By (Pacific Time)||11/18/2016 02:00 pm|
You recently purchased a stock, and you expect it to earn 30% in a booming economy, 9% in a normal economy, and lose 33% in a recessionary economy. There is a 5% probability of a boom and a 75% chance of a normal economy. What is your expected rate of return on this stock?
The standard deviation of a portfolio:
is a measure of that portfolio's systemic risk.
is a weighted average of the standard deviations of the individual securities held in that portfolio.
measures the amount of diversifiable risk inherent in the portfolio.
serves as the basis for computing the appropriate risk premium for that portfolio.
can be less than the weighted average of the standard deviations of the individual securities held in that portfolio.
The returns on the common stock of a particular company are quite cyclical. In a boom economy, the stock is expected to return 32% in comparison to 14% in a normal economy and a negative 28% in a recessionary period. The probability of a recession is 25% while the probability of a boom is 20%. What is the standard deviation of the returns on this stock?
Which one of the following risks is irrelevant to a well-diversified investor?
systemic portion of a surprise
Which one of the following will be constant for all securities if the market is efficient and securities are priced fairly?
According to the CAPM, the amount of reward an investor receives for bearing the risk of an individual security depends upon the:
amount of total risk assumed and the market risk premium.
risk-free rate, market risk premium, and the amount of systemic risk inherent in the security.
risk-free rate, the market rate of return, and the standard deviation of the security.
beta of the security and the market rate of return.
standard deviation of the security and the risk-free rate of return.
You own a portfolio comprised entirely of 100 shares of Stock A and 500 shares of Stock B. The current market prices for Stock A and Stock B are $20 and $7, respectively. Stock A’s expected return is 14%, and Stock B’s expected return is 9%. What is the expected return on the portfolio?
The risk-free rate of return is 3.9% and the market risk premium is 6.2%. Using the CAPM, what is the expected rate of return on a stock with a beta of 1.21?
The primary purpose of portfolio diversification is to:
increase returns and risks.
eliminate all risks.
eliminate asset-specific unique risk.
eliminate systemic risk.
lower both returns and risks.
You have $10,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 13% and Stock Y with an expected return of 8%. Your goal is to create a portfolio with an expected return of 12.4%. All money must be invested. How much will you invest in stock X?
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