<101>.Assume that the risk-free price is 5%.  which of the following statements is CORRECT?

 

a.If a stock's beta doubled, its required return under the CAPM would additionally double.

You are watching: Assume that the risk-free rate is 5%. which of the following statements is correct?

b.If a stock's beta doubled, its compelled return under the CAPM would much more than double.

c.If a stock's beta to be 1.0, its forced return under the CAPM would be 5%.

d.If a stock's beta were much less than 1.0, its required return under the CAPM would be much less than 5%.

e.If a stock has actually a an unfavorable beta, its compelled return under the CAPM would be less than 5%.

 

<102>.Portfolio P has actually equal amounts invested in each of the 3 stocks, A, B, and C. Share A has a beta the 0.8, stock B has a beta that 1.0, and also Stock C has actually a beta of 1.2.  each of the stocks has actually a traditional deviation the 25%.  The return on the three stocks space independent the one one more (i.e., the correlation coefficients all same zero).  Assume the there is rise in the industry risk premium, however the risk-free rate remains unchanged.  which of the following statements is CORRECT?

 

a.The required return on stock A will increase by much less than the boost in the market risk premium, while the compelled return on share C will increase by more than the rise in the market risk premium.

b.The required return on the average stock will continue to be unchanged, but the returns of riskier stocks (such as Stock C) will rise while the return of more secure stocks (such together Stock A) will certainly decrease.

c.The forced returns on all three stocks will rise by the quantity of the rise in the sector risk premium.

d.The compelled return ~ above the typical stock will remain unchanged, however the return on riskier stocks (such as Stock C) will decrease while the return on much safer stocks (such as Stock A) will increase.

e.The forced return of all stocks will remain unchanged since there was no adjust in their betas.

 

<103>.Assume the the risk-free rate is 6% and the market risk premium is 5%.  given this information, i m sorry of the following statements is CORRECT?

 

a.If a stock has actually a an unfavorable beta, its required return must also be negative.

b.An index money with beta = 1.0 should have actually a required return much less than 11%.

c.If a stock's beta doubles, its forced return must additionally double.

d.An index fund with beta = 1.0 should have a forced return better than 11%.

e.An index money with beta = 1.0 should have actually a forced return of 11%.

 

<104>.Which the the following statements is CORRECT?

 

a.If the risk-free rate rises, then the sector risk premium must additionally rise.

b.If a company's beta is halved, then its forced return will additionally be halved.

c.If a company's beta doubles, climate its compelled return will additionally double.

d.The steep of the security sector line is equal to the sector risk premium, (rM − rRF).

e.Beta is measured by the steep of the security sector line.

 

<105>.Dixon Food's stock has a beta of 1.4, while Clark Café’s stock has a beta the 0.7.  Assume that the risk-free rate, rRF, is 5.5% and the market risk premium, (rM − rRF), equals 4%.  i m sorry of the following statements is CORRECT?

 

a.If the market risk premium increases yet the risk-free rate remains unchanged, Dixon’s required return will increase due to the fact that it has actually a beta better than 1.0 but Clark’s compelled return will decrease because it has a beta less than 1.0.

b.Since Dixon’s beta is twice that of Clark’s, its forced rate of return will likewise be double that the Clark’s.

c.If the risk-free rate boosts while the sector risk premium continues to be constant, then the compelled return top top an mean stock will increase.

d.If the industry risk premium decreases but the risk-free price remains unchanged, Dixon’s required return will decrease due to the fact that it has a beta greater than 1.0 and also Clark’s will also decrease, yet by an ext than Dixon’s since it has a beta much less than 1.0.

e.If the risk-free price increases but the sector risk premium continues to be unchanged, the required return will boost for both stocks but the increase will be bigger for Dixon since it has a higher beta.

 

<106>.Stock A has actually a beta that 0.8 and also Stock B has a beta that 1.2.  50% that Portfolio ns is invested in stock A and 50% is invested in share B.  If the industry risk premium (rM − rRF) were to increase however the risk-free rate (rRF) continued to be constant, which of the complying with would occur?

 

a.The required return would decrease by the very same amount because that both Stock A and Stock B.

b.The forced return would boost for stock A however decrease for Stock B.

c.The compelled return on Portfolio ns would continue to be unchanged.

d.The required return would rise for share B but decrease for Stock A.

e.The compelled return would increase for both stocks but the rise would be higher for stock B than for share A.

 

<107>.Assume that the risk-free rate remains constant, yet the sector risk premium declines.  i m sorry of the complying with is most most likely to occur?

 

a.The required return ~ above a stock through beta > 1.0 will certainly increase.

b.The return ~ above "the market" will continue to be constant.

c.The return top top "the market" will increase.

d.The compelled return top top a stock v beta

e.The compelled return ~ above a stock v beta = 1.0 will certainly not change.

 

<108>.Assume the the risk-free rate, rRF, increases however the industry risk premium, (rM − rRF), declines, through the net result being that the as whole required return ~ above the market, rM, continues to be constant.  which of the complying with statements is CORRECT?

 

a.The required return will decrease for share that have a beta much less than 1.0 however will increase for share that have actually a beta higher than 1.0.

b.Since the all at once return on the sector stays constant, the compelled return on each individual stock will additionally remain constant.

c.The required return will increase for share that have actually a beta less than 1.0 but decrease for share that have a beta higher than 1.0.

d.The forced return of all stocks will fall by the quantity of the decrease in the industry risk premium.

e.The required return of every stocks will rise by the amount of the boost in the risk-free rate.

 

<109>.Which the the adhering to statements is CORRECT?

 

a.The steep of the Security industry Line is beta.

b.Any stock v a negative beta must in theory have a negative required price of return, detailed rRF is positive.

c.If a stock's beta doubles, its forced rate of return must also double.

d.If a stock's returns space negatively associated with returns on many other stocks, the stock's beta will be negative.

e.If a stock has a beta of to 1.0, its forced rate of return will certainly be unaffected by transforms in the industry risk premium.

 

<110>.Which the the adhering to statements is CORRECT?

 

a.Portfolio diversification to reduce the variability of returns on an separation, personal, instance stock.

b.Risk refers to the opportunity that part unfavorable event will occur, and also a probability distribution is totally described by a listing the the likelihoods the unfavorable events.

c.The SML relates a stock's compelled return come its sector risk.  The slope and intercept that this line cannot be controlled by the firms' managers, however managers can influence your firms' location on the line by such actions as an altering the firm's funding structure or the form of assets it employs.

d.A stock v a beta that -1.0 has actually zero sector risk if held in a 1-stock portfolio.

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e.When diversifiable risk has been diversified away, the natural risk that continues to be is market risk, which is constant for every stocks in the market.