Question 1

You have gathered the following information concerning a particular investment and conditions in the market.  According to the Capital Asset Pricing Model, the required return for this investment is

Accepted Answer

A)  8.85%.
B)  11.48%.
C)  13.98%.
D)  14.85%.E) B) and D)
F) A) and B)

Question 2

The beta of the market is

Accepted Answer

A)  -1.0.
B)  0.0.
C)  1.0.
D)  undefined.E) All of the above
F) A) and B)

Question 3

For stocks with positive betas, higher risk stocks will have higher beta values.

Accepted Answer

A) True 
 B)False

Question 4

Which one of the following types of risk cannot be effectively eliminated through portfolio diversification?

Accepted Answer

A)  inflation risk
B)  labor problems
C)  materials shortages
D)  product recallsE) A) and D)
F) A) and C)

Question 5

OKAY stock has a beta of 0.8.The market as a whole is expected to decline by 12% thereby causing OKAY stock to

Accepted Answer

A)  decline by 9.6%.
B)  decline by 12.5%.
C)  increase by 9.6%.
D)  increase by 12%.E) All of the above
F) None of the above

Question 6

Modern portfolio theory does not consider diversifiable risk relevant because

Accepted Answer

A)  it is easy to eliminate.
B)  it is impossible to eliminate.
C)  its effects are unpredictable.
D)  its effects are too small to make a difference in portfolio returns.E) B) and C)
F) A) and B)

Question 7

An investment portfolio should be built around the needs of the individual investor.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following best describes the relationship between a stock's beta and the standard deviation of the stock's returns?

Accepted Answer

A)  The higher the standard deviation, the higher the beta.
B)  The higher the standard deviation, the lower the beta.
C)  The relationship depends on the correlation between the stock's returns and the market's returns.
D)  Standard deviation and beta are different ways of measuring the same thing.E) A) and B)
F) All of the above

Question 9

The CAPM estimates the required rate of return on a stock held as part of a well diversified portfolio.

Accepted Answer

A) True 
 B)False

Question 10

Both the efficient frontier and beta are important aspects of MPT.

Accepted Answer

A) True 
 B)False

Question 11

A stock with a beta of 1.3 is less risky than a stock with a beta of 0.42.

Accepted Answer

A) True 
 B)False

Question 12

Beta measures diversifiable risk while standard deviation measures systematic risk.

Accepted Answer

A) True 
 B)False

Question 13

Standard deviation is a measure that indicates how the price of an individual security responds to market forces.

Accepted Answer

A) True 
 B)False

Question 14

Beta can be defined as the slope of the line that explains the relationship between

Accepted Answer

A)  the return on a security and the return on the market.
B)  the returns on a security and various points in time.
C)  the return on stocks and the returns on bonds.
D)  the risk free rate of return versus the market rate of return.E) C) and D)
F) B) and D)

Question 15

Modern portfolio theory seeks to minimize risk and maximize return by combining highly correlated assets.

Accepted Answer

A) True 
 B)False

Question 16

What is the expected return on a stock with a beta of 1.09, a market risk premium of 8%, and a risk-free rate of 4%?

Accepted Answer

A)  4.36%
B)  8.36%
C)  8.72%
D)  12.72%E) A) and B)
F) C) and D)

Question 17

Maximum international diversification can be achieved by investing solely in U.S.multinational corporations.

Accepted Answer

A) True 
 B)False

Question 18

The Franko Company has a beta of 1.90.By what percent will the required rate of return on the stock of Franko Company increase if the expected market rate of return rises by 3%?

Accepted Answer

A)  1.91%
B)  2.75%
C)  3.27%
D)  5.70%E) C) and D)
F) A) and D)

Question 19

The returns on the stock of DEF and GHI companies over a 4 year period are shown below:

From this limited data you should conclude that returns on

Accepted Answer

A)  DEF and GHI are negatively correlated.
B)  DEF and GHI are somewhat positively correlated.
C)  DEF and GHI are perfectly positively correlated.
D)  DEF and GHI are uncorrelated.E) B) and D)
F) B) and C)

Question 20

In designing a portfolio, relevant risk is

Accepted Answer

A)  total risk.
B)  unsystematic risk.
C)  event risk.
D)  nondiversifiable risk.E) None of the above
F) A) and C)

Exam 5: Modern Portfolio Concepts

The beta of the market is

Correct AnswerverifiedShow Answer

For stocks with positive betas, higher risk stocks will have higher beta values.

Correct AnswerverifiedShow Answer

A stock with a beta of 1.3 is less risky than a stock with a beta of 0.42.

Correct AnswerverifiedShow Answer

Beta can be defined as the slope of the line that explains the relationship between

Correct AnswerverifiedShow Answer

You have gathered the following information concerning a particular investment and conditions in the market. According to the Capital Asset Pricing Model, the required return for this investment is

Correct AnswerverifiedShow Answer

Modern portfolio theory does not consider diversifiable risk relevant because

Correct AnswerverifiedShow Answer

OKAY stock has a beta of 0.8.The market as a whole is expected to decline by 12% thereby causing OKAY stock to

Correct AnswerverifiedShow Answer

Both the efficient frontier and beta are important aspects of MPT.

Correct AnswerverifiedShow Answer

In designing a portfolio, relevant risk is

Correct AnswerverifiedShow Answer

The Franko Company has a beta of 1.90.By what percent will the required rate of return on the stock of Franko Company increase if the expected market rate of return rises by 3%?

Correct AnswerverifiedShow Answer

The returns on the stock of DEF and GHI companies over a 4 year period are shown below: From this limited data you should conclude that returns on

Correct AnswerverifiedShow Answer

Which of the following best describes the relationship between a stock's beta and the standard deviation of the stock's returns?

Correct AnswerverifiedShow Answer

Beta measures diversifiable risk while standard deviation measures systematic risk.

Correct AnswerverifiedShow Answer

The CAPM estimates the required rate of return on a stock held as part of a well diversified portfolio.

Correct AnswerverifiedShow Answer

An investment portfolio should be built around the needs of the individual investor.

Correct AnswerverifiedShow Answer

Standard deviation is a measure that indicates how the price of an individual security responds to market forces.

Correct AnswerverifiedShow Answer

Modern portfolio theory seeks to minimize risk and maximize return by combining highly correlated assets.

Correct AnswerverifiedShow Answer

What is the expected return on a stock with a beta of 1.09, a market risk premium of 8%, and a risk-free rate of 4%?

Correct AnswerverifiedShow Answer

Maximum international diversification can be achieved by investing solely in U.S.multinational corporations.

Correct AnswerverifiedShow Answer

Which one of the following types of risk cannot be effectively eliminated through portfolio diversification?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified