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finance data bank

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Question;19. Which of the;following statements is CORRECT? (Assume;that the risk-free rate is 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 be-tas.;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 the;following data 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 isola-tion 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. Which of 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 is 4.25%, and the market risk;premium is 5.50%. What is the firm's;required rate 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 required return is 11.75%, and the risk-free rate is;4.30%. 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#51054 | Written in 18-Jul-2015

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