Risk and Return (2)

From the statistics provided, a portfolio which invests 25% in stock A and 75% in stock B will have return closest to:

• 12.75%

• 19%

• 20%

• 13.5%

From the statistics provided, a portfolio which invests 25% in stock A and 75% in stock B will have standard deviation closest to:

• 13.5%

• 18.3%

• 20%

• 19%

From the statistics provided, the Sharpe ratio of stock A is closest to:

• 0.55

• 0.68

• 1.47

• 1.22

From the statistics provided, the Sharpe ratio of the portfolio is…

• Higher than individual stocks because diversification reduces portfolio risk.

• Higher than individual stocks because portfolio return is higher than those of individual stocks.

• Lower than individual stocks because diversification reduces portfolio return.

• Lower than individual stocks because portfolio return is lower than return of stock A.

A minimum-variance portfolio formed by investing in only stocks must be…

• Risker than risk-free asset.
• Less risky than risk-free asset.
• As risky as the risk-free asset.

Which of the following statements is TRUE?

• An asset with zero beta should earn the same return as the risk-free rate
• An asset with zero beta is risk-free
• An asset with negative beta is less attractive than an asset with positive beta
• If beta doubles, so will required rate of return

00From the statistics provided, the beta of stock A is closest to:

• 0.96

• 1.60

• 0.38

• 1.00

From the statistics provided, the appropriate [required] rate of return for stock A is closest to:

• 11.6%

• 12%

• 11%

• 14.5%

Assume that the CAPM holds. From the statistics provided, it can be inferred that stock A is…

• Overpriced

• Underpriced

From the statistics provided, a portfolio which invests 80% in the market portfolio and 20% in the risk-free asset will have standard deviation closest to:

• 12%

• 15%

• 7.5%

• 3%