10 What is the sign of the risk premium of a negative-beta stock? Explain. (Assume the risk premium of the market portfolio is positive)(Select the best choice below.)A. Indeterminate-not all negative beta stocks have negative risk premiums.OB. Positive all stocks must have positive risk premiums.OC. Negative-assuming the market risk premium is positive, the risk premium has the same sign as beta.OD. Zero-stocks with a negative beta have zero risk premiums.4GLEEVSAMSUNGTime Remaining: 02:51:0120 GNext6:02 PM

The risk premium is the additional return that investors require to compensate them for taking on…

What is the sign of the risk premium of a negative-beta stock? Explain. (Assume the risk premium of the market portfolio is positive) (Select the best choice below.) A. Indeterminate-not all negative beta stocks have negative risk premiums. B. Positive-all stocks must have positive risk premiums. OC. Negative-assuming the market risk premium is positive, the risk premium has the same sign as beta. OD. Zero-stocks with a negative beta have zero risk premiums.

What is the sign of the risk premium of a negative-beta stock? Explain. (Assume the risk premium of the market portfolio is positive) (Select the best choice below.) A. Indeterminate-not all negative beta stocks have negative risk premiums. B. Positive-all stocks must have positive risk premiums. OC. Negative-assuming the market risk premium is positive, the risk premium has the same sign as beta. OD. Zero-stocks with a negative beta have zero risk premiums.

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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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.
In efficient markets, the rate of return on a stock should be: A. always greater than the risk-free rate B. Less than zero C. Related to the systemic risk of the stock D. Zero; no stock should earn a positive return
1. A stock with a beta of zero would be expected to have a rate of return equal to a. the risk-free rate b. the market risk premium c. zero d. the market rate of return 2. If an individual stock's beta is higher than 1.0, that stock is: a. riskier than the market. b. always the most attractive to investors. c. less risky than the market. d. exactly as risky as the market. 3. If Brewer Corporation's bonds are currently yielding 8% in the marketplace, why is the firm's cost of debt lower? a. Market interest rates have increased. b. Additional debt can be issued more cheaply than the original debt. c. Interest is deductible for tax purposes. d. There should be no difference; cost of debt is the same as the bonds' market yield.
Which of the following statements is CORRECT? a. The slope of the Security Market Line is beta. b. Any stock with a negative beta must in theory have a negative required rate of return, provided rRF is positive. c. If a stock's beta doubles, its required rate of return must also double. d. If a stock's returns are negatively correlated with returns on most other stocks, the stock's beta will be negative. e. If a stock has a beta of to 1.0, its required rate of return will be unaffected by changes in the market risk premium.
b) The covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, and standard deviation of stock B is 0.044. Which of the following is the most appropriate to depict the risk-return characteristics of a portfolio consisting of only stocks A and B, and explain why? E(R) E(R) E(R) B. B. A. A (A) (В) (C)
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.
7. If the point representing a stock's return and risk is above the security market, then B. the stock is underpriced A. the stock is overpriced C. the stock is fairly priced D. the stock is overpriced if the risk is high, but is underpriced if the risk is low
An individual stock with a beta greater than 1.0 is a. Same as risky as the market b. Riskier that the market c. Less risky as the market d. It has no relationship with the market
1. Beta is positively related A. the degree of correlation between a stock's return and the market return B. the systematic risk of a stock C. risk premium required by the stock D. all of the above
Which of the following statements about CAPM is true? a. The expected return of a zero-beta security or portfolio equals risk free rate. b. •The risk premium an investor expects to receive on any stock or portfolio increases with standard deviation. C. Beta measures total risk. On equilibrium, total risk is compensated by return. e. The beta of the market portfolio equals zero.
A stock's standard deviation determines how the stock affects the riskiness of a diversified portfolio; therefore, it is a better measure of a stock's relevant risk than is the beta-coefficient, which measures total, or stand-alone, risk.Choices:a. TRUEb. FALSE
a) The covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, and standard deviation of stock B is 0.044. Which of the following is the most appropriate to depict the risk- return characteristics of a portfolio consisting of only stocks A and B, and explain why? E(R) E(R) E(R) A A A (A) (B) (C) b) found to be half of the required return (Rs) on stock B. The risk-free rate (R) is one-fourth of the required Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (DA) to beta of B (OB). c) Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to pay returns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standard deviation equal to 20% and is NOT correlated with the S&P500. Asset B pays on average 8%, also has standard deviation equal to 20% and has correlation of 0.5 with…

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