PFIN 7:STUDENT EDITION-MINDTAP (1 TERM)
7th Edition
ISBN: 9780357033647
Author: Billingsley
Publisher: CENGAGE L
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Chapter 6, Problem 3FPE
Summary Introduction
To identify: The debt safety ratio of Person C and the amount of monthly debt payment at given monthly take-home pay and 12.5% debt safety ratio. The monthly take-home pay of Person C at given amount of monthly debt payment and 12.5% debt safety ratio
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According to the capital asset pricing model, what is the expected return on a security with a beta of zero?
Multiple choice question.
Zero
The return on the market
The market-risk premium
The risk-free rate of return
The beta of a security measures Blank______.
Multiple choice question.
the responsiveness of the security's total risk to the return on the market as a whole
the responsiveness of the security's unsystematic risk to the return on the market as a whole
the responsiveness of the security's return to the return on the market as a whole
the correlation between the security and the risk-free rate
Which of the following is the correct equation of the capital asset pricing model (CAPM)?
(E(Ri) denotes the expected return on a security, Rf denotes the risk-free rate, [E(RM) − Rf] denotes the market risk premium, and βi denotes the amount of systematic risk present in the security.)
Multiple choice question.
E(Ri) = Rf + [E(RM) – Rf] × βi
E(Ri) = Rf – [E(RM) + Rf] × βi
E(Ri) = Rf – [E(RM) – Rf] × βi
E(Ri) = Rf + [Rf− E(RM)] × βi
Chapter 6 Solutions
PFIN 7:STUDENT EDITION-MINDTAP (1 TERM)
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- A positively sloped straight line displaying the relationship between expected return and beta in financial markets is called the Blank______. Multiple choice question. beta line security market line capital market line minimum variance linearrow_forwardWhich of the following statements are true of the arbitrage pricing theory? More than one answer may be correct. Multiple select question. It shows that the expected return on any risky asset is a linear combination of various factors. It can handle multiple factors that the capital asset pricing model (CAPM) ignores. It is based on the assumption that all securities have zero systematic risk. It is based on the assumption that there are plenty of arbitraging opportunities in the market.arrow_forwardThe returns of Asset B and risk-free asset are 10% and 5% respectively. If they are held in proportions of 0.60 (Asset B) and 0.40 (risk-free asset) in a portfolio, then the portfolio return is Blank______. Multiple choice question. 8% 4% 15% 5%arrow_forward
- Based on the capital asset pricing model (CAPM), there is generally Blank______. Multiple choice question. a negative relationship between beta and the expected return on a security no relationship between beta and the expected return on a security a positive relationship between beta and the expected return on a securityarrow_forwardYou own a stock portfolio invested in 40 percent in stock A and 60 percent in Stock B. The betas for these two stocks are 0.5 and 1.0, respectively. What is the portfolio beta? Multiple choice question. 1.0 1.5 0.75 0.8arrow_forwardThe security market line (SML) shows that the relationship between a security's expected return and its beta is Blank______. Multiple choice question. negative overrated positive insignificantarrow_forward
- The beta of a security measures Blank______. Multiple choice question. the responsiveness of the security's return to the return on the market as a whole the responsiveness of the security's total risk to the return on the market as a whole the correlation between the security and the risk-free rate the responsiveness of the security's unsystematic risk to the return on the market as a wholearrow_forwardhe benefit in risk reduction from adding securities Blank______ as more and more securities are added to a portfolio. Multiple choice question. remains the same increases declinesarrow_forwardIdentify the true statements about a beta coefficient. More than one answer may be correct. Multiple select question. A beta coefficient tells us how much systematic risk a particular asset has relative to an average asset representing the market portfolio. A beta coefficient tells us how much unsystematic risk a particular asset has relative to an average asset representing the market portfolio. By definition, an average asset has a beta of 1.0 relative to itself. A beta coefficient tells us how much total risk a particular asset has relative to an average asset representing the market portfolio.arrow_forward
- Most of the benefit in risk reduction is realized when the number of securities reaches Blank______. Multiple choice question. 100 5 50 10arrow_forwardThe returns of Asset A and risk-free asset are 20% and 10% respectively. If they are held in proportions of 80% (Asset A) and 20% (risk-free asset) in a portfolio, then the portfolio return is Blank______. Multiple choice question. 14% 12% 18% 15%arrow_forwardWhich of the following is true of a risk-averse investor? Multiple choice question. A risk-averse investor invests only in risk-free assets, such as T-bills. A risk-averse investor avoids investments that have zero expected return. correct A risk-averse investor invests in securities that have zero total risk. A risk-averse investor invests in securities that have zero systematic risk.arrow_forward
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