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##### GB550 quiz

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Question;1. Consider the following information and then;calculate the required rate of return for the Scientific Investment Fund, which;holds 4 stocks. The market?s required rate of return is 15.0%, the risk-free;rate is 7.0%, and the Fund's assets are as follows: 30;Stock Investment Beta;A \$ 200,000 1.50;B 300,000 -0.50;C 500,000 1.25;D 1,000,000 0.75;(Points: 2);10.67%;11.23%;11.82%;13.10%;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. The SML relates required returns;to firms? systematic (or market) risk. The slope and intercept of this line can;be influenced by managerial actions. (Points: 2);True;False;Question 4. 4. 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 5. 5. The slope of the SML is;determined by the value of beta. (Points: 2);True;False;Question 6. 6. 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 7. 7. The CAPM is a multi-period model;which takes account of differences in securities? maturities, and it can be;used to determine the required rate of return for any given level of systematic;risk. (Points: 2);True;False;Question 8. 8. 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 9. 9. 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 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#50163 | Written in 18-Jul-2015

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