Stock A is fairly priced by the market. Given that the risk free rate is 3.5%, the beta of stock A is 1.2, the beta of stock B is 0.8, the expected return on A is 6.5% and on B is 5.5% which of the following is correct given that betas of stocks A and B are correct? a. Stock B is also fairly priced b. The expected return on stock B is too high c. The expected return on stock A is too high d. The price of stock B is too high e. The price of stock A is too high. 9) Which of the following would likely have the greatest amount of systematic risk? a. A portfolio of the ordinary shares of 100 randomly selected companies b. The market portfolio c. A portfolio half invested in the market portfolio and half invested in treasury bills d. A portfolio half invested in the market portfolio and half invested in stocks with betas greater than 1.5 e. A portfolio made up entirely of treasury bills

Stock A is fairly priced by the market. Given that the risk free rate is 3.5%, the beta of stock A is 1.2, the beta of stock B is 0.8, the expected return on A is 6.5% and on B is 5.5% which of the following is correct given that betas of stocks A and B are correct? a. Stock B is also fairly priced b. The expected return on stock B is too high c. The expected return on stock A is too high d. The price of stock B is too high e. The price of stock A is too high. 9) Which of the following would likely have the greatest amount of systematic risk? a. A portfolio of the ordinary shares of 100 randomly selected companies b. The market portfolio c. A portfolio half invested in the market portfolio and half invested in treasury bills d. A portfolio half invested in the market portfolio and half invested in stocks with betas greater than 1.5 e. A portfolio made up entirely of treasury bills

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 2Q: Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a...

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Question

Stock A is fairly priced by the market. Given that the risk free rate is 3.5%, the beta of stock A

is 1.2, the beta of stock B is 0.8, the expected return on A is 6.5% and on B is 5.5% which of

the following is correct given that betas of stocks A and B are correct?

a. Stock B is also fairly priced

b. The expected return on stock B is too high

c. The expected return on stock A is too high

d. The price of stock B is too high

e. The price of stock A is too high.

9) Which of the following would likely have the greatest amount of systematic risk?

a. A portfolio of the ordinary shares of 100 randomly selected companies

b. The market portfolio

c. A portfolio half invested in the market portfolio and half invested in treasury bills

d. A portfolio half invested in the market portfolio and half invested in stocks with betas

greater than 1.5

e. A portfolio made up entirely of treasury bills

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