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  • 1. FIN 534 Week 5 Quiz 4 (30 questions with answers) 99,8 % scored PLEASE DOWNLOAD HEREFinance 534 week 5 quiz 4Question 1Assume that in recent years both expected inflation and the market risk premium(rM− rRF) have declined. Assume also that all stocks have positive betas. Whichof the following would be most likely to have occurred as a result of thesechanges?Question 2Assume that the risk-free rate is 5%. Which of the following statements isCORRECT?Question 3Which of the following statements is CORRECT?Question 4A highly risk-averse investor is considering adding one additional stock to a 3-stock portfolio, to form a 4-stock portfolio. The three stocks currently held allhave , and they are perfectly positively correlated with the market. Potential newStocks A and B both have expected returns of 15%, are in equilibrium, and areequally correlated with the market, with However, Stock As standard deviation ofreturns is 12% versus 8% for Stock B. Which stock should this investor add to hisor her portfolio, or does the choice not matter?Question 5Which of the following statements is CORRECT? (Assume that the risk-free rateis a constant.)Question 6During the coming year, the market risk premium (rM − rRF), is expected to fall,while the risk-free rate, rRF, is expected to remain the same. Given this forecast,which of the following statements is CORRECT?Question 7
  • 2. Stock As beta is 1.5 and Stock Bs beta is 0.5. Which of the following statementsmust be true, assuming the CAPM is correct.Question 8Bob has a $50,000 stock portfolio with a beta of 1.2, an expected return of 10.8%,and a standard deviation of 25%. Becky also has a $50,000 portfolio, but it has abeta of 0.8, an expected return of 9.2%, and a standard deviation that is also25%. The correlation coefficient, r, between Bobs and Beckys portfolios is zero.If Bob and Becky marry and combine their portfolios, which of the following bestdescribes their combined $100,000 portfolio?Question 9Stock As beta is 1.5 and Stock Bs beta is 0.5. Which of the following statementsmust be true about these securities? (Assume market equilibrium.)Question 10For a portfolio of 40 randomly selected stocks, which of the following is most likelyto be true?Question 11Which of the following statements is CORRECT?Question 12You have the following data on three stocks: Stock Standard Deviation Beta A 20% 0.59 B 10% 0.61 C 12% 1.29If you are a strict risk minimizer, you would choose Stock ____ if it is to be held inisolation and Stock ____ if it is to be held as part of a well-diversified portfolio.Question 13Stock A has a beta of 0.8, Stock B has a beta of 1.0, and Stock C has a beta of1.2. Portfolio P has equal amounts invested in each of the three stocks. Each ofthe stocks has a standard deviation of 25%. The returns on the three stocks areindependent of one another (i.e., the correlation coefficients all equal zero).
  • 3. Assume that there is an increase in the market risk premium, but the risk-freerate remains unchanged. Which of the following statements is CORRECT?Question 14Which is the best measure of risk for a single asset held in isolation, and which isthe best measure for an asset held in a diversified portfolio?Question 15Which of the following statements is CORRECT?Question 16If in the opinion of a given investor a stock’s expected return exceeds its requiredreturn, this suggests that the investor thinksQuestion 17The preemptive right is important to shareholders because itQuestion 18Stocks X and Y have the following data. Assuming the stock market is efficientand the stocks are in equilibrium, which of the following statements isCORRECT? X YPrice $25 $25Expected dividend yield 5% 3%Required return 12% 10%Question 19Companies can issue different classes of common stock. Which of the followingstatements concerning stock classes is CORRECT?Question 20The required returns of Stocks X and Y are % and rY= 12%. Which of the following statements is CORRECT?Question 21
  • 4. Stocks A and B have the following data. Assuming the stock market is efficientand the stocks are in equilibrium, which of the following statements isCORRECT? A BPrice $25 $40Expected growth 7% 9%Expected return 10% 12%Question 22Stocks X and Y have the following data. Assuming the stock market is efficientand the stocks are in equilibrium, which ofthe following statements is CORRECT? X YPrice $30 $30Expected growth (constant) 6% 4%Required return 12% 10%Question 23Which of the following statements is CORRECT?Question 24Stocks A and B have the same price and are in equilibrium, but Stock A has thehigher required rate of return. Which of the following statements is CORRECT?Question 25Stocks A and B have the following data. Assumingthe stock market is efficient and the stocks are in equilibrium, which of thefollowing statements is CORRECT? A BRequired return 10% 12%Market price $25 $40
  • 5. Expected growth 7% 9%Question 26An increase in a firm’s expected growth rate would cause its required rate ofreturn toQuestion 272 out of 2 pointsIf markets are in equilibrium, which of the following conditions will exist?Question 28Two constant growth stocks are in equilibrium, have the same price, and have thesame required rate of return. Which of the following statements is CORRECT?Question 29For a stock to be in equilibrium, that is, for there to be no long-term pressure forits price to depart from its current level, thenQuestion 30Which of the following statements is CORRECT, assuming stocks are inequilibrium?