Last year, you purchased a stock at a price of $50 a share. Over the course of the year, you received $2 in dividends and inflation averaged 2.8 percent. Today, you sold your shares for $53.9 a share. What is your approximate real rate of return on this investment?

11.8 percent

14.6 percent

4.5 percent

9.0 percent

14.3 percent

Estimating the rate of return for any portfolio lying on the security market line requires which of the following?

portfolio beta, the risk-free rate, and the market risk premium

market rate of return, market beta, and the risk-free rate

risk-free rate, factor beta, and the industry beta

factor beta and the market risk premium

market rate of return and the portfolio beta

The beta of a security is calculated as: (_____ of a security’s return with the return on the market portfolio / _______).

Covariance; Standard deviation of the market return

Covariance; Variance of the market return

Variance; Covariance of the market return

Covariance; Variance of the security return

Variance; Covariance of the security return

Which one of the following statements is true?

An individual security has negligible unsystematic risk.

A well-diversified portfolio has negligible unsystematic risk.

An individual security has negligible systematic risk.

A well-diversified portfolio has negligible systematic risk.

Both a well-diversified portfolio and an individual security have negligible unsystematic risk.

The use of leverage:

decreases both the asset and the equity betas.

decreases the equity beta and increases the asset beta.

increases the equity beta but does not affect the asset beta.

increases both the asset and the equity betas.

decreases the equity beta but does not affect the asset beta.