WorksheetsTest - Risk and Return (portfolio)
Total questions: 35
Worksheet time: 58mins
Investors can eliminate what type of risk by diversifying?
Systematic risk
Unsystematic risk
Beta risk
Total risk
Beta represents ............. Risk.
Systematic Risk
Unsystematic Risk
Total Risk
Default Risk
what is the full form of CAPM?
Current Assets pricing Model
Capital Assets Pricing model
Current Average Pricing Model
Capital Average Pricing Model
From the following information calculate expected return from XYZ Ltd.- Risk free rate is 5 % , Market return is 10% and Beta value is 0.5 of XYZ Ltd.
5%
7.5%
10%
15%
From the following information you have to calculate Risk Premium.
Risk free rate is 10%, market return is 15% and beta is 1.5.
5%
17.5%
15%
10%
A "More risky " common stock would have a "beta"
Equal to Zero
More then one
Less then One
Equal to One
Assume that a security is fairly priced and has an expected rate of return of 0.13. The market expected rate of return is 0.13 and the risk-free rate is 0.04. The beta of the stock is
1.25
1.7
1
0.95
The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of 1.2 is equal to
0.06
0.144
0.12
0.132
The principle of diversification tells us that:
concentrating an investment in two or three large stocks will eliminate all of the unsystematic risk.
concentrating an investment in three companies all within the same industry will greatly reduce the systematic risk.
spreading an investment across many diverse assets will eliminate some of the total risk.
spreading an investment across five diverse companies will not lower the total risk.
Total risk is measured by _____ and systematic risk is measured by _____.
beta; standard deviation
alpha; beta
standard deviation; beta
standard deviation; variance
Suzie owns five different bonds and twelve different stocks. Which one of the following terms most applies to her investments?
Index
Portfolio
Collection
Risk-free
By diversifying, investors can eliminate ____.
Systematic risk
Unsystematic risk
Beta risk
Total risk
___ reduces risk by spreading investment money among a wide array of investment tools.
Risk tolerance
Risk profile
Portfolio Diversification
Buying an individual stock
The information relating to the expected return of a given security (i.e., CAPM) is as follows. The market return is 8.5%, the risk-free rate is 1.5%, and the security Beta is 1.50. (Note: CAPM is given as rj = Rf + [Bj x (rm-Rf)]). Find the required return of the given security.
12%
7%
10.5%
3%
The market portfolio has a beta of
0
1
–1
0.5
A stock's beta measures the:
average return on the stock
sensitivity of the stock's returns to those of the market portfolio
difference between the return on the stock and the return on the market portfolio
market risk premium on the stock
A project has a beta of 1.24, the risk-free rate is 3.8%, and the market rate of return is 9.2%. What is the project's expected rate of return?
15.21%
11.41%
10.50%
14.61%
Which one of these statements is correct?
Betas can be measured exactly.
If a stock has a very low beta, it is likely to have a high beta in the future
The expected future risk premium is easy to accurately determine
CAPM is widely used as a means of estimating expected returns
What is a portfolio?
collection of assets
efficient market
surprise component
Non diversifiable risk is also called
unsystematic risk
systematic risk
total risk
unsystematic risk is also known as
unique risk
systematic risk
market risk
Which is diversification?
you own 50 internet stock
you own 50 stocks that span 20 different industries
There is a minimum level of risk that cannot be diversified away and that is called
systematic portion
unsystematic portion
asset specific risk
standard deviation measures:
total risk
systematic risk
unsystematic risk
systematic risk is measure by
standard deviation
beta
weightage
The excess return required from a risky asset over that required from a risk-free asset is called the:
risk premium
geometric premium
excess return
average return
Portfolio risk refer to the
risk of holding or invest into 1 type of investment
risk for holding or invest into 2 or more types of investments
risk of carrying high risk investments
risk of buying unknown investments
The slope of the line fitted to a plot of a stock's returns versus the market's returns measures the:
security market line
beta of the stock
market risk premium
capital asset pricing model
What is the beta of a 3-stock portfolio including 25% of stock A with a beta of 0.90, 40% of stock B with a beta of 1.05, and 35% of stock C with a beta of 1.73?
1.0
1.17
1.22
1.25
A project has a beta of 1.24, the risk-free rate is 3.8%, and the market rate of return is 9.2%. What is the project's expected rate of return?
15.21%
11.41%
10.50%
14.61%
A portfolio consists of an index mutual fund which represents the overall market and Treasury bills. The fund has a portfolio weight of 60%. The risk-free rate is 3.2% and the market risk premium is 7.6%. What is your best estimate of the portfolio expected rate of return?
8.39%
7.76%
10.80%
9.02%
What would you recommend to an investor who is considering an investment that plots below the security market line?
Invest; The expected return is high relative to the risk
Don't invest; The risk is high relative to the expected return
Invest; All stocks revert to the SML over time
Don't invest; All stocks below the SML are low-growth stocks
In the context of the Capital Asset Pricing Model (CAPM), the relevant measure of risk is
unique risk.
beta.
standard deviation of returns.
variance of returns.
The risk-free rate is 4%. The expected market rate of return is 11%. If you expect CAT with a beta of 1.0 to offer a rate of return of 10%, you should
buy CAT because it is overpriced.
sell short CAT because it is overpriced.
buy CAT because it is underpriced.
None of the options, as CAT is fairly priced.
SML is based on which formula?
Rm+ (RM-RF)
Rm + Beta (Rm-RF)
Rm + beta
Beta (Rm-Rf)
