Question 1

You observe the following information regarding Companies X and Y:
•Company X has a higher expected return than Company Y.
•Company X has a lower standard deviation of returns than Company Y.
•Company X has a higher beta than Company Y.
​
Given this information,which of the following statements is CORRECT?

Accepted Answer

A)  Company X has more diversifiable risk than Company Y.
B)  Company X has a lower coefficient of variation than Company Y.
C)  Company X has less market risk than Company Y.
D)  Company X's returns will be negative when Y's returns are positive.
E)  Company X's stock is a better buy than Company Y's stock.F) B) and C)
G) None of the above

Question 2

Assume that you are the portfolio manager of the SF Fund,a $3 million hedge fund that contains the following stocks.The required rate of return on the market is 11.00% and the risk-free rate is 5.00%.What rate of return should investors expect (and require) on this fund? ​

Accepted Answer

A)  10.56%
B)  10.83%
C)  11.11%
D)  11.38%
E)  11.67%F) C) and D)
G) A) and E)

Question 3

Assume that to cool off the economy and decrease expectations for inflation,the Federal Reserve tightened the money supply,causing an increase in the risk-free rate,rRF.Investors also became concerned that the Fed's actions would lead to a recession,and that led to an increase in the market risk premium,(rM − rRF) .Under these conditions,with other things held constant,which of the following statements is most correct?

Accepted Answer

A)  The required return on all stocks would increase by the same amount.
B)  The required return on all stocks would increase, but the increase would be greatest for stocks with betas of less than 1.0.
C)  Stocks' required returns would change, but so would expected returns, and the result would be no change in stocks' prices.
D)  The prices of all stocks would decline, but the decline would be greatest for high-beta stocks.
E)  The prices of all stocks would increase, but the increase would be greatest for high-beta stocks.F) A) and E)
G) All of the above

Question 4

The standard deviation is a better measure of risk than the coefficient of variation if the expected returns of the securities being compared differ significantly.

Accepted Answer

A) True 
 B)False

Question 5

A stock's beta measures its diversifiable risk relative to the diversifiable risks of other firms.

Accepted Answer

A) True 
 B)False

Question 6

Your portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y.Both stocks have an expected return of 15%,betas of 1.6,and standard deviations of 30%.The returns of the two stocks are independent,so the correlation coefficient between them,rXY,is zero.Which of the following statements best describes the characteristics of your 2-stock portfolio?

Accepted Answer

A)  Your portfolio has a standard deviation of 30%, and its expected return is 15%.
B)  Your portfolio has a standard deviation less than 30%, and its beta is greater than 1.6.
C)  Your portfolio has a beta equal to 1.6, and its expected return is 15%.
D)  Your portfolio has a beta greater than 1.6, and its expected return is greater than 15%.
E)  Your portfolio has a standard deviation greater than 30% and a beta equal to 1.6.F) B) and D)
G) D) and E)

Exam 8: Risk and Rates of Return

Correct Answer
verified

Correct Answer
verified

The standard deviation is a better measure of risk than the coefficient of variation if the expected returns of the securities being compared differ significantly.

Correct Answer
verified

A stock's beta measures its diversifiable risk relative to the diversifiable risks of other firms.

Correct Answer
verified

Assume that you are the portfolio manager of the SF Fund,a $3 million hedge fund that contains the following stocks.The required rate of return on the market is 11.00% and the risk-free rate is 5.00%.What rate of return should investors expect (and require) on this fund?

Correct Answer
verified

Correct Answer
verified

Exam 8: Risk and Rates of Return

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The standard deviation is a better measure of risk than the coefficient of variation if the expected returns of the securities being compared differ significantly.

Correct AnswerverifiedShow Answer

A stock's beta measures its diversifiable risk relative to the diversifiable risks of other firms.

Correct AnswerverifiedShow Answer

Assume that you are the portfolio manager of the SF Fund,a $3 million hedge fund that contains the following stocks.The required rate of return on the market is 11.00% and the risk-free rate is 5.00%.What rate of return should investors expect (and require) on this fund? ​

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Assume that you are the portfolio manager of the SF Fund,a $3 million hedge fund that contains the following stocks.The required rate of return on the market is 11.00% and the risk-free rate is 5.00%.What rate of return should investors expect (and require) on this fund?

Correct Answer
verified

Correct Answer
verified