When diversification completely reduced the non-systematic risk of a portfolio a. The return of the portfolio becomes 0 b. The portfolio’s remaining risk is only the beta c. The portfolio is no longer subject to any risk d. The risk of the portfolio will increase drastically It is forecasted, in the coming years, that the market risk premium is expected to fall while the risk free rate is expected to remain at the same level. Based on this forecast, which of the statement holds true for the stocks’ required return? a. The require return for all the stocks will decline by the same amount b. The required return will fall for all stocks but will fall more for stocks with higher betas c. The required return on all stocks will remain unchanged d. Required return will fall for all stocks but will decline less for stocks with higher betas Which of the following statements is false? a. The slope of the security market line is measured by beta. b. Company-specific risk can be diversified away. c. The market risk premium is affected by attitudes about risk. d. Higher beta stocks have a higher required return. Which of the following statements is most correct? a. The slope of the security market line is beta. b. The slope of the security market line is the market risk premium. c. If you double a company’s beta its required return more than doubles. d. All of the choices are False Stock A has a beta of 0.5, while Stock B has a beta of 1.3. Which of the following statements is most true? a. Stock B must have a higher expected return and a higher standard deviation than Stock A. b. A portfolio consisting of P50,000 invested in Stock A and P50,000 invested in Stock B will have a required return that exceeds that of the overall market. c. If the market risk premium decreases but expected inflation is unchanged, the required return on both stocks will decrease but the decrease will be greater for Stock B. d. If expected inflation increases but the market risk premium is unchanged, the required return on both stocks will decrease by the same amount. Stock X has a beta of 0.8 and Stock Y has a beta of 1.2. 50% of Portfolio P is invested in Stock X and 50% is invested in Stock Y. If the market risk premium will increase but the risk-free rate remained constant, which of the following would occur? a. The required return will decrease by the same amount for both Stock X and Stock Y. b. The required return will increase for both stocks but the increase will be greater for Stock Y than for Stock X. c. The required return will increase for Stock Y but will decrease for Stock X. d. The required return on Portfolio P will remain unchanged. Which of the following is not a difficulty concerning beta and its estimation? a. Sometimes a security or project does not have a past history that can be used as a basis for calculating beta. b. Sometimes, during a period when the company is undergoing a change such as toward more leverage or riskier assets, the calculated beta will be drastically different than the “true” or “expected future” beta. c. The beta of an “average stock,” or “the market,” can change over time, sometimes drastically. d. Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed.
When diversification completely reduced the non-systematic risk of a portfolio
a. The return of the portfolio becomes 0
b. The portfolio’s remaining risk is only the beta
c. The portfolio is no longer subject to any risk
d. The risk of the portfolio will increase drastically
It is forecasted, in the coming years, that the market risk premium is expected to fall while the risk free rate is expected to remain at the same level. Based on this
a. The require return for all the stocks will decline by the same amount
b. The required return will fall for all stocks but will fall more for stocks with higher betas
c. The required return on all stocks will remain unchanged
d. Required return will fall for all stocks but will decline less for stocks with higher betas
Which of the following statements is false?
a. The slope of the security market line is measured by beta.
b. Company-specific risk can be diversified away.
c. The market risk premium is affected by attitudes about risk.
d. Higher beta stocks have a higher required return.
Which of the following statements is most correct?
a. The slope of the security market line is beta.
b. The slope of the security market line is the market risk premium.
c. If you double a company’s beta its required return more than doubles.
d. All of the choices are False
Stock A has a beta of 0.5, while Stock B has a beta of 1.3. Which of the following statements is most true?
a. Stock B must have a higher expected return and a higher standard deviation than Stock A.
b. A portfolio consisting of P50,000 invested in Stock A and P50,000 invested in Stock B will have a required return that exceeds that of the overall market.
c. If the market risk premium decreases but expected inflation is unchanged, the required return on both stocks will decrease but the decrease will be greater for Stock B.
d. If expected inflation increases but the market risk premium is unchanged, the required return on both stocks will decrease by the same amount.
Stock X has a beta of 0.8 and Stock Y has a beta of 1.2. 50% of Portfolio P is invested in Stock X and 50% is invested in Stock Y. If the market risk premium will increase but the risk-free rate remained constant, which of the following would occur?
a. The required return will decrease by the same amount for both Stock X and Stock Y.
b. The required return will increase for both stocks but the increase will be greater for Stock Y than for Stock X.
c. The required return will increase for Stock Y but will decrease for Stock X.
d. The required return on Portfolio P will remain unchanged.
Which of the following is not a difficulty concerning beta and its estimation?
a. Sometimes a security or project does not have a past history that can be used as a basis for calculating beta.
b. Sometimes, during a period when the company is undergoing a change such as toward more leverage or riskier assets, the calculated beta will be drastically different than the “true” or “expected future” beta.
c. The beta of an “average stock,” or “the market,” can change over time, sometimes drastically.
d. Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
