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Question;19.;Which of the following statements is CORRECT?(Assume that the risk-free rateis a constant.);a. If the market risk;premium increases by 1%, then the required return on all stocks will rise by;1%.;b. If the market risk;premium increases by 1%, then the required return will increase for stocks that;have a beta greater than 1.0, but it will decrease for stocks that have a beta;less than 1.0.;c.If the market risk premium increases by 1%, then the required;return will increase by 1% for a stock that has a beta of 1.0.;d. The effect of a;change in the market risk premium depends on the level of the risk-free rate.;e. The effect of a;change in the market risk premium depends on the slope of the yield curve.;20. In the next year;the market risk premium, (rM - rRF), is expected to;fall, while the risk-free rate, rRF, is expected to remain the;same. Given this forecast, which of the following statements is;CORRECT?;a. The required return;for all stocks will fall by the same amount.b The required return will fall for all stocks, but it will;fall more for stocks with higher betas.;c. The required return;will fall for all stocks, but it will fall less for stocks with;higher betas.;d. The required return;will increase for stocks with a beta less than 1.0 and will decrease for stocks;with a beta greater than 1.0.;e. The required return;on all stocks will remain unchanged.;21. You have thefollowingdata on three stocks;Stock Standard;Deviation Beta;A 20% 0.59;B 10% 0.61;C 12% 1.29;If you are a strict risk;minimizer, you would choose Stock ____ if it is to be held in isolation and;Stock ____ if it is to be held as part of a well-diversified portfolio.;a. A;A.;b. A;B.;c. B, A.;d. C;A.;e. C;B.;22.Stock A's;beta is 1.5 and Stock B's beta is 0.5.Whichof the following statements must be true about;these securities? (Assume market equilibrium.);a. When;held in isolation, Stock A has more risk than Stock B.;b. Stock;B must be a more desirable addition to a portfolio than A.;c. Stock;A must be a more desirable addition to a portfolio than B.;d The expected return on Stock A should be;greater than that on B.;e The expected return on Stock B should be;greater than that on A.;.23. Cooley Company's stock has a beta of 1.40, the risk-free rate is4.25%, and the market risk;premium is5.50%.What is the firm'srequiredrate of return?;a. 11.36%;b. 11.65%;c 11.95%;d. 12.25%;e. 12.55%;24.Company A;has a beta of 0.70, while Company B's beta is 1.20. The required return;on the stock market is 11.00%, and the risk-free rate is 4.25%. What is;the difference between A's and B's required rates of return? (Hint: First;find the market risk premium, then find the required returns on the stocks.);a..2.75%;b. 2.89%;c. 3.05%;d. 3.21%e.3.38%;25.Mulherin's stock has a beta of 1.23, its requiredreturnis 11.75%, and the risk-free rate is4.30%.What is the required rate of return on the;market?(Hint:First find the market risk premium.)a 10.36%;b. 10.62%;c. 10.88%;d. 11.15%;e. 11.43%

 

Paper#44782 | Written in 18-Jul-2015

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