A firm has a Beta of 1.6. The market return is measured as 8.5% and the risk free rate is 1.75% Is this firm's stock more or less volatile/riskythan the overall stock market? Group of answer choices This firm is MORE risky than the average firm. This firm is LESS risky than theaverage firm. This firm has SIMILAR risk to the average firm. There is not enough information to tell.

Beta measures the sensitivity of a stock's returns to changes in the overall market returns. A beta…

Answered: A firm has a Beta of 1.6. The market…

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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using the single factor model for firm with a Beta of 1 and when the standard deviationof the market is .3 What can we say about the standard deviationof this firm’s stock?
A stock analyst at PJ Brokers estimates that the beta of stock ZLX is close to two (2.0). Therefore, ZLX will have an expected return that is: A) about equal to the risk-free rate B) about equal to the market expected return C) expected to exceed the market expected return
You want to estimate the cost of equity of firm A using CAPM. Firm A has a beta of 1.3. Assume that the return on the market portfolio is 8.52%, and the risk-free rate is 3%. What is the cost of equity of firm A? Group of answer choices There is not enough information to answer this question. 10.17% 11.74% 14.21% 12.11%
Microsoft is the only stock in your portfolio. To reduce the risk you decide to add another stock in your portfolio. In fact you pick another stock that has a correlation coefficient of 1 with Microsoft. Which risk do you reduce by adding the second stock to your portfolio? O A. Systematic risk O B. Company specific risk O C. Risk free rase risk O D. Technology risk OE. None of the above
Solve this practice problem in the 2 pictures below
Which of the following statements is true? A company with a Beta less than 1.0 has a higher expect return than the market return A company with a Beta of 1.0 should have an expected return equal to an index fund. A roughly equal number of companies have positive Betas versus those with negative Betas The market Beta is 9%
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You have been provided the following data about the securities of three firms, the market portfolio, and the risk-free asset: a. Fill in the missing values in the table. (Leave no cells blank - be certain to enter 0 wherever required. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Security Expected Return Standard Deviation Correlation* Beta Firm A 0.120 0.21 0.96 Firm B 0.130 0.40 1.51 Firm C 0.111 0.76 0.25 YOU The market portfolio 0.12 0.21 ma The risk-free asset 0.05 a.
7. Diversification and risk The graph shows the relationship between risk, measured as the standard deviation of a stock portfolio's return, and the number of different stocks in the portfolio for a hypothetical stock market. RISK (Standard deviation of portfolio return) 60 20 01 4 True 10 20 30 NUMBER OF STOCKS IN PORTFOLIO True or False: Increasing the number of stocks in a portfolio reduces firm-specific risk. False 40 ?
Which one of the following statements is correct? When more stocks are added into a portfolio, the beta of that portfolio will a) always decrease. The beta of ABC and XYZ is 1.95 and 0.88, respectively. This information b) implies that ABC has less market risk than XYZ. A stock has a beta of 1.5. It implies that this stock has lower total risk than c) the overall market. The beta of ABC and XYZ is 1.95 and 0.88, respectively. This information implies that ABC has higher total risk than XYZ. The risk premium investors demand from a stock will increase as the beta of the stock increases.
Based on the CAPM model, a stock with a negative beta has which of the following characteristics? A. An expected return less than zero. B. An expected return equal to the risk-free rate. C. Since these are so rare, the CAPM model does not account for negative beta stocks. D. An expected return less than the risk-free rate.

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