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kaplan gb550 quiz 4




Question;1.You hold a diversified portfolio;consisting of a $5,000 investment in each of 20 different common stocks. The;portfolio beta is equal to 1.12. You have decided to sell a lead mining stock;(b = 1.00) at $5,000 net and use the proceeds to buy a like amount of a steel;company stock (b = 2.00). What is the new beta of the portfolio?;(Points: 2) 1.1139;1.1700;1.2311;1.2927;Question;2. 2.Calculate the;required rate of return for Mercury, Inc., assuming that (1) investors;expect a 4.0% rate of inflation in the future, (2) the real risk-free rate;is 3.0%, (3) the market risk premium is 5.0%, (4) Mercury has a beta of;1.00, and (5) its realized rate of return has averaged 15.0% over the last;5 years.;(Points;2);10.29%;10.83%;11.40%;12.00%;Question;3. 3.In a portfolio of three different stocks, which of;the following could NOT be true? (Points: 2);The riskiness of the portfolio is;less than the riskiness of each of the stocks if they were held in isolation.;The riskiness of the portfolio is greater;than the riskiness of one or two of the stocks.;The beta of the portfolio is less than the betas of;each of the individual stocks.;The beta of the portfolio is greater than;the beta of one or two of the individual stocks? betas.;Question;4. 4.We will almost always find that the beta of a;diversified portfolio is less stable over time than the beta of a single;security. (Points: 2);True;False;Question;5. 5.Stock A?s beta is 1.5 and Stock B?s beta is 0.5.;Which of the following statements must be true about these securities?;(Assume market equilibrium.) (Points: 2);When held in isolation, Stock A;has greater risk than Stock B.;Stock B must be a more desirable addition;to a portfolio than Stock A.;Stock A must be a more desirable addition;to a portfolio than Stock B.;The expected return on Stock A should be greater than that;on Stock B.;Question;6. 6.Which of the following statements is CORRECT?;(Points: 2);?Characteristic line? is another name for the Security;Market Line.;The characteristic line is the regression;line that results from plotting the returns on a particular stock versus the;returns on a stock from a different industry.;The slope of the characteristic line is;the stock?s standard deviation.;The distance of the plot points from the;characteristic line is a measure of the stock?s diversifiable risk.;Question;7. 7.Which of the following is NOT a potential problem;with beta and its estimation? (Points: 2);Sometimes a security or project;does not have a past history which can be used as a basis for calculating;beta.;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.;The beta of ?the market,? can change over time;sometimes drastically.;Sometimes the past data used to calculate;beta do not reflect the likely risk of the firm for the future because;conditions have changed.;Question;8. 8.If the returns of two firms are negatively;correlated, then one of them must have a negative beta. (Points: 2);True;False;Question;9. 9.It is possible for a firm to have a positive beta;even if the correlation between its returns and those of another firm are;negative. (Points: 2);True;False;Question 10. 10.Which is the best measure of risk;for an asset held in isolation, and which is the best measure for an asset;held in a diversified portfolio? (Points: 2);Variance, correlation coefficient.;Standard deviation, correlation;coefficient.;Beta, variance.;Coefficient of variation, beta.


Paper#49499 | Written in 18-Jul-2015

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