Quiz 11: Risk and Return: the Capital Asset Pricing Model

If the covariance of stock 1 with stock 2 is -.0065, then what is the covariance of stock 2 with stock 1?

A portfolio is entirely invested into Buzz's Bauxite Boring Equity, which is expected to return 16%, and Zum's Inc. bonds, which are expected to return 8%. Sixty percent of the funds are invested in Buzz's and the rest in Zum's. What is the expected return on the portfolio?

A portfolio will usually contain:

Stock A has an expected return of 20%, and stock B has an expected return of 4%. However, the risk of stock A as measured by its variance is 3 times that of stock B. If the two stocks are combined equally in a portfolio, what would be the portfolio's expected return?

Systematic risk is measured by:

Idaho Slopes (IS) and Dakota Steppes (DS) are both seasonal businesses. IS is a downhill skiing facility, while DS is a tour company that specializes in walking tours and camping. The equally likely returns on each company over the next year is expected to be: The correlation between the returns of IS and DS is:

Idaho Slopes (IS) and Dakota Steppes (DS) are both seasonal businesses. IS is a downhill skiing facility, while DS is a tour company that specializes in walking tours and camping. The equally likely returns on each company over the next year is expected to be: The variances of IS and DS are:

When stocks with the same expected return are combined into a portfolio:

GenLabs has been a hot stock the last few years, but is risky. The expected returns for GenLabs are highly dependent on the state of the economy as follows: The variance and standard deviation of GenLabs returns are:

The rate of return on the common stock of Flowers by Flo is expected to be 14% in a boom economy, 8% in a normal economy, and only 2% in a recessionary economy. The probabilities of these economic states are 20% for a boom, 70% for a normal economy, and 10% for a recession. What is the variance of the returns on the common stock of Flowers by Flo?

You have plotted the data for two securities over time on the same graph, ie., the month return of each security for the last 5 years. If the pattern of the movements of the two securities rose and fell as the other did, these two securities would have:

If you have a portfolio of two risky stocks which turns out to have no diversification. The reason you have no diversification is:

Idaho Slopes (IS) and Dakota Steppes (DS) are both seasonal businesses. IS is a downhill skiing facility, while DS is a tour company that specializes in walking tours and camping. The equally likely returns on each company over the next year is expected to be: The covariance between the IS and DS returns is:

GenLabs has been a hot stock the last few years, but is risky. The expected returns for GenLabs are highly dependent on the state of the economy as follows: The expected return on GenLabs is:

Standard deviation measures ________________ risk.

Idaho Slopes (IS) and Dakota Steppes (DS) are both seasonal businesses. IS is a downhill skiing facility, while DS is a tour company that specializes in walking tours and camping. The equally likely returns on each company over the next year is expected to be: If IS and DS are combined in a portfolio with 50% invested in each, the expected return and risk would be:

If the correlation between two stocks is -1, the returns:

Idaho Slopes (IS) and Dakota Steppes (DS) are both seasonal businesses. IS is a downhill skiing facility, while DS is a tour company that specializes in walking tours and camping. The equally likely returns on each company over the next year is expected to be: The means of IS and DS are:

Covariance measures the interrelationship between two securities in terms of:

When a security is added to a portfolio the appropriate return and risk contributions are: