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Question;41. Below table describes historically;realized returns on Towson, Inc.;2005;2006;2007;2008;2009;Stock Return;12.50%;8.50%;15.00%;21.00%;6.50%;Calculate (1) average realized return;and coefficient of variation. (Hint;standard deviation is 5.71%);a.;12.70%, 0.48;b.;25.40%, 0.55;c.;31.75%, 0.69;d.;39.37%, 0.72;e.;40.18%, 0.84;42. Data for Dana Industries is shown;below. Now Dana acquires some risky;assets that cause its beta to increase by 30%.;What is the stock's new required rate of return?;Initial beta 1.00;Risk free rate;(rs) 6.20%;Market risk;premium, RPM 6.00%;a. 14.00%;b. 14.70%;c. 15.44%;d. 16.21%;e. 17.02%;43 If you expect (=demand=require) 10% return on security A;and 12% return on security B, what causes such a disparity?;a.;real;risk free rate;b.;expected;inflation rate;c.;risk;premium;d.;A;B;e.;B;C;44. Given that a (nominal) risk free rate;is 2% and the market average return is expected to be 5%, what is the market;risk premium (=slope of the SML)? Determine the required rate of return for a;security with a beta of 1.5.;a.;3%, 6.5%;b.;5%, 9.5%;c.;3%, 9.5%;d.;5%, 6.5%;e.;3%, 10.5%;45. If US T-Bill;has 4% return, what is the risk premium of an investment which has 7% required;rate of return?;a.;3%;b.;4%;c. 5%;d. 5.5%;e. 7%;46. During;the coming 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 will increase for stocks;with a beta less than 1.0 and will decrease for stocks with a beta greater than;1.0.;b.;The;required return on all stocks will remain;unchanged.;c.;The;required return will fall for all stocks;but it will fall more for stocks with higher betas.;d.;The;required return for all stocks will fall;by the same amount.;e.;The;required return will fall for all stocks, but it;will fall less for stocks with higher betas.;47. Which of the following statements best describes what you should expect if you randomly;select stocks and add them to your portfolio?;a.;Adding;more such stocks will reduce the portfolio's unsystematic;or diversifiable, risk.;b.;Adding;more such stocks will increase the portfolio's expected rate of return.;c.;Adding;more such stocks will reduce the portfolio's beta;coefficient and thus its systematic risk.;d.;Adding;more such stocks will have no effect on the portfolio's;risk.;e.;Adding;more such stocks will reduce the portfolio's market;risk but not its unsystematic risk.;48. 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 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.;b.;The;effect of a change in the market risk premium depends on the slope of the yield;curve.;c.;If;the market risk premium increases by 1%, then the required return on all stocks;will rise by 1%.;d.;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.;e.;The;effect of a change in the market risk premium depends on the level of the;risk-free rate.;49. Jill Angel holds a $200,000 portfolio consisting of the following;stocks. The portfolio's beta is 0.875.;Stock Investment Beta;A $;50,000 0.50;B 50,000 0.80;C 50,000 1.00;D 50,000 1.20;Total $200,000;If Jill replaces Stock A with another stock, E, which has a beta of;1.50, what will the portfolio's new beta be?;a. 1.07;b. 1.13;c. 1.18;d. 1.24;e. 1.30;50. Mikkelson Corporation's stock had a required return of;11.75% last year, when the risk-free rate was 5.50% and the market risk premium;was 4.75%. Then an increase in investor;risk aversion caused the market risk;premium to rise by 2%. The risk-free;rate and the firm's beta remain unchanged.;What is the company's new required rate of return? (Hint: First calculate the beta, then find;the required return.)


Paper#51174 | Written in 18-Jul-2015

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