6. Which of the following statements is incorrect?A. The expected risk premium on each investment is proportional to its beta.B. Securities with a higher market risk require a higher expected return.C. The stock beta measures the sensitivity of a stock's return to the return onthe market portfolio.D. If the correlation of the stock returns in your stock portfolio increases overtime, then the variance of the portfolio return will decrease over time.E. None of the above7. Which of the following correctly ranks the various asset classes in the UnitedStates according to their historical average risk premium (i.e. from low to high riskpremium)?A. S&P 500 < long term government bonds < Treasury bills < small firms <corporate bondsB. Treasury bills < corporate bonds < long term government bonds < smallfirms < S&P 500C. Treasury Bills < long term government bonds < corporate bonds < S&P500 < small firmsD. Long term government bonds < Treasury bills < corporate bonds < S&P500 < small firmsE. None of the above

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6. Which of the following statements is incorrect? A. The expected risk premium on each investment is proportional to its beta. B. Securities with a higher market risk require a higher expected return. C. The stock beta measures the sensitivity of a stock's return to the return on the market portfolio. D. If the correlation of the stock returns in your stock portfolio increases over time, then the variance of the portfolio return will decrease over time. E. None of the above

6. Which of the following statements is incorrect? A. The expected risk premium on each investment is proportional to its beta. B. Securities with a higher market risk require a higher expected return. C. The stock beta measures the sensitivity of a stock's return to the return on the market portfolio. D. If the correlation of the stock returns in your stock portfolio increases over time, then the variance of the portfolio return will decrease over time. E. None of the above

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The beta of a portfolio is: A. A measure of the correlation of betas of the securities in the portfolio. B. Always greater than one. C. The market value weighted average beta of the securities in the portfolio. D. The geometric average of the beta of the securities in the portfolio.
Unsystematic risk: is compensated for by the risk premium. is measured by standard deviation. is related to the overall economy. can be effectively eliminated by portfolio diversification. is measured by beta.
2. Stock prices and stand-alone risk Risk is the potential for an investment to generate more than one return. A security that will produce only one known return is referred to as a risk-free asset, as there is no potential for deviation from the known expected outcome. Investments that have the chance of producing more than one possible outcome are called risky assets. Risk, or potential variability in an investment's possible returns, occurs when there is uncertainty about an investment's future outcome, such as the return expected to be generated by the investment and realized by an investor. Generally, investors would prefer to invest in assets that have: O A higher-than-average expected rate of return given the perceived risk O A lower-than-average expected rate of return given the perceived risk Read the following descriptions and identify the type of risk or term being described: Description This type of risk relates to the possibility that a firm will not be able to service its…
Portfolio provides average risk but much lower return. The key is the negative correlations among individual stocks. True False Answer should be correct(Be fast)
The Capital Asset Pricing Model (CAPM) says that the risk premium on a stock is equal to its beta times the market risk premium. ..... True False
If markets are efficient, periodic (e.g. daily) portfolio returns should have zero serial correlation. True False
It measures the sensitivity of the return of a security to changes in the return of a common index taken to be a proxy of the market portfolio. A. alpha B. sharpe index C. treynor index D. Beta
As risk aversion increases A. a firm's beta will increase. B. investors' required rate of return will increase. C. a firm's beta will decrease. D. investors' required rate of return will decrease.
please help me check my work and anything unsolved, thanks
Which ones of the following statements about portfolio beta are correct? O 1. If portfolio beta is between 0 and 1, then the portfolio expected return is between risk-free rate and the market expected return. O 2. If the return of an asset has zero correlation with the market portfolio returns, the beta of this asset must be zero. O 3. A portfolio that has the same portfolio weights as the market portfolio should have a beta of 1. O 4. Diversification is not a way to reduce portfolio beta. O 5. If two portfolios have the same portfolio weights, but different dollar values, their betas are the same.
Which of the following statements is CORRECT? a. Lower beta stocks have higher required returns. b. A stock's beta indicates its diversifiable risk. c. Diversifiable risk cannot be completely diversified away. d. Two securities with the same stand-alone risk must have the same betas. e. The slope of the security market line is equal to the market risk premium.
What does beta represent? Multiple Choice Beta is a measure of covariance standardized by the variance of the market. This adjusts the risk of the firm to be relative to the risk of the market. Beta is the extra income earned on an investment that cannot be explained by systematic risk or unsystematic risk. Beta is related to the return on risk-free assets. Beta is always positive or O, it cannot be negative because stock prices cannot be negative.

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