1. Suppose that both X and Y are well-diversified portfolios and risk-free rate is 8%. Portfolio X has expected return of 14% and beta of 1.00. Portfolio Y has the expected return of 9.5% and beta of 0.25. In this situation, you would conclude that portfolios X and Y __________.
A) Are in equilibrium
B) Offer an arbitrage opportunity
C) Are both underpriced
D) Are both fairly priced
2. What is expected return on stock with beta of 0.8, given risk free rate of 3.5% and expected market return of 15.6%?
A) 3.8%
B) 13.2%
C) 15.6%
D) 19.1%
3. If only data available is that beta of a stock is 1.4, determine probable return on investment in this stock if market falls 5%?
A) -6%
B) -5%
C) +5%
D) +6%
4. Risk premium for exposure to aluminium commodity prices is 4% and firm has a beta relative to aluminium commodity prices of 0.6. Risk premium for exposure to GDP changes is 6% and firm has beta relative to GDP of 1.2. If risk free rate is 4.0%, computed the expected return on this stock?
A) 10.0%
B) 11.5%
C) 13.6%
D) 14.0%