Question 1

The expected return on a security depends on which of the following? I. risk-free rate of return
II) amount of the security's unique risk
III market rate of return
IV) standard deviation of returns

Accepted Answer

The expected return on a security is influenced by the risk-free rate of return and the market rate of return, as these are components of the Capital Asset Pricing Model (CAPM). Unique risk and standard deviation are not directly used in calculating expected return in CAPM.

Question 2

Given the following information, what is the variance of the returns on this stock?

Accepted Answer

The answer of Given the following information, what is the...

Question 3

You own a portfolio of two stocks, A and B. Stock A is valued at $6,540 and has an expected return of 11.2 percent. Stock B has an expected return of 8.1 percent. What is the expected return on the portfolio if the portfolio value is $9,500?

Accepted Answer

The answer of You own a portfolio of two stocks,...

Question 4

Given the following information, what is the standard deviation of the returns on this stock?

Accepted Answer

The answer of Given the following information, what is the...

Question 5

You own a portfolio that is invested 38 percent in stock A, 43 percent in stock B, and the remainder in stockC. The expected returns on these stocks are 10.7 percent, 15.4 percent, and 9.1 percent, respectively. What is the expected return on the portfolio?

Accepted Answer

The answer of You own a portfolio that is invested...

Question 6

World United stock currently plots on the security market line and has a beta of 1.04. Which one of the following will increase that stock's rate of return without affecting the risk level of the stock, all else constant?

Accepted Answer

The answer of World United stock currently plots on the...

Question 7

Julie wants to create a $5,000 portfolio. She also wants to invest as much as possible in a high risk stock with the hope of earning a high rate of return. However, she wants her portfolio to have no more risk than the overall market. Which one of the following portfolios is most apt to meet all of her objectives?

Accepted Answer

The answer of Julie wants to create a $5,000 portfolio....

Question 8

Candy and More stock is expected to produce the following returns given the various states of the economy. What is the expected return on this stock?

Accepted Answer

To calculate the expected return, we need to take the weighted average of the returns of each state, weighted by their respective probabilities.

Expected Return = (0.1 x 6%) + (0.2 x 8%) + (0.35 x 10%) + (0.3 x 12%) + (0.05 x 15%) 
Expected Return = 0.6% + 1.6% + 3.5% + 3.6% + 0.75% 
Expected Return = 9.90%

Therefore, the expected return on this stock is 9.90%. The best choice is D.

Question 9

Based on the capital asset pricing model, which one of the following must increase the expected return on an individual security, all else constant?

Accepted Answer

According to the capital asset pricing model (CAPM), the expected return on an individual security is equal to the risk-free rate plus the security's beta times the market risk premium. Therefore, an increase in the risk-free rate (option E) will increase the expected return on the individual security, all else constant. Options A, B, C, and D describe changes that could affect the expected return, but each one would actually decrease the expected return on the security.

Question 10

You own a $46,000 portfolio comprised of four stocks. The values of stocks A, B, and C are $5,600, $16,700, and $11,400, respectively. What is the portfolio weight of stock D?

Accepted Answer

The answer of You own a $46,000 portfolio comprised of...

Question 11

Given the following information, what is the standard deviation of the returns on this stock?

Accepted Answer

We can use the formula for calculating standard deviation to find the answer. To do this, we need to first find the variance of returns by taking the sum of squared deviations from the mean, which comes out to be 0.0861. Then, we divide this number by the number of observations minus 1, which is 11 in this case. Taking the square root of this gives us the standard deviation, which comes out to be 0.078 or 7.80%. Therefore, the correct answer is C.

Question 12

You own a portfolio that is invested as follows: $11,600 of stock A, $7,800 of stock B, $14,900 of stock C, and $3,200 of stock D. What is the portfolio weight of stock C?

Accepted Answer

The portfolio weight of stock C is calculated by dividing the value of stock C by the total value of the portfolio. The total value of the portfolio is $11,600 + $7,800 + $14,900 + $3,200 = $37,500. The weight of stock C is $14,900 / $37,500 = 0.3973 or 39.73 percent.

Question 13

Given the following information, what is the variance of the returns on this stock?

Accepted Answer

The answer of Given the following information, what is the...

Question 14

The capital asset pricing model:

Accepted Answer

The answer of The capital asset pricing model:
...

Question 15

Northern Wear stock has an expected return of 14.6 percent. Given the information below, what is the expected return on this stock if the economy is normal?

Accepted Answer

The answer of Northern Wear stock has an expected return...

Question 16

Based on the capital asset pricing model, investors are compensated based on which of the following? I. market risk premium
II) portfolio standard deviation
III) portfolio beta
IV) risk-free rate

Accepted Answer

According to the capital asset pricing model, investors are compensated for taking on market risk (I), which is measured by the market risk premium, as well as for taking on additional risk in relation to the overall market (III), which is measured by the portfolio beta. In addition, investors are compensated for the time value of money (IV), which is represented by the risk-free rate. Portfolio standard deviation (II) is not a factor that directly influences compensation according to the CAPM.

Question 17

Hal Enterprises stock has an expected return of 10.2 percent. Given the information below, what is the expected return if the economy is in a recession?

Accepted Answer

The answer of Hal Enterprises stock has an expected return...

Question 18

Neighborhood Stores' stock has a risk premium of 9.6 percent while the inflation rate is 3.1 percent and the risk-free rate is 3.8 percent. What is the expected return on this stock?

Accepted Answer

Expected return = risk-free rate + risk premium
Expected return = 3.8% + 9.6%
Expected return = 13.4%

Question 19

Blue Lagoon stock is expected to produce the following returns given the various states of the economy. What is the expected return on this stock?

Accepted Answer

The answer of Blue Lagoon stock is expected to produce...

Question 20

What is the expected return on a security given the following information?

Accepted Answer

The answer of What is the expected return on a...

Quiz 11: Risk and Return

The expected return on a security depends on which of the following? I. risk-free rate of return II) amount of the security's unique risk III market rate of return IV) standard deviation of returns

Given the following information, what is the variance of the returns on this stock?

You own a portfolio of two stocks, A and B. Stock A is valued at $6,540 and has an expected return of 11.2 percent. Stock B has an expected return of 8.1 percent. What is the expected return on the portfolio if the portfolio value is $9,500?

Given the following information, what is the standard deviation of the returns on this stock?

You own a portfolio that is invested 38 percent in stock A, 43 percent in stock B, and the remainder in stockC. The expected returns on these stocks are 10.7 percent, 15.4 percent, and 9.1 percent, respectively. What is the expected return on the portfolio?

World United stock currently plots on the security market line and has a beta of 1.04. Which one of the following will increase that stock's rate of return without affecting the risk level of the stock, all else constant?

Candy and More stock is expected to produce the following returns given the various states of the economy. What is the expected return on this stock?

Based on the capital asset pricing model, which one of the following must increase the expected return on an individual security, all else constant?

You own a $46,000 portfolio comprised of four stocks. The values of stocks A, B, and C are $5,600, $16,700, and $11,400, respectively. What is the portfolio weight of stock D?

Given the following information, what is the standard deviation of the returns on this stock?

You own a portfolio that is invested as follows: $11,600 of stock A, $7,800 of stock B, $14,900 of stock C, and $3,200 of stock D. What is the portfolio weight of stock C?

Given the following information, what is the variance of the returns on this stock?

The capital asset pricing model:

Northern Wear stock has an expected return of 14.6 percent. Given the information below, what is the expected return on this stock if the economy is normal?

Based on the capital asset pricing model, investors are compensated based on which of the following? I. market risk premium II) portfolio standard deviation III) portfolio beta IV) risk-free rate

Hal Enterprises stock has an expected return of 10.2 percent. Given the information below, what is the expected return if the economy is in a recession?

Neighborhood Stores' stock has a risk premium of 9.6 percent while the inflation rate is 3.1 percent and the risk-free rate is 3.8 percent. What is the expected return on this stock?

Blue Lagoon stock is expected to produce the following returns given the various states of the economy. What is the expected return on this stock?

What is the expected return on a security given the following information?