Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Financial Accounting Expert

problem1. Stock A's beta is 1.5 and Stock B's beta is 0.5. Which of the following statements should be true supposing the CAPM is correct.

a. In equilibrium, the expected return on Stock B will be greater than that on the Stock A.

b. Stock A would be a more desirable addition to a portfolio then Stock B.

c. In equilibrium, the expected return on Stock A will be greater than that on the B.

d. Stock B would be a more desirable addition to a portfolio than A.

e. When held in isolation, Stock A has more risk than Stock B.

problem2. Suppose that you manage a $10.00 million mutual fund that has a beta of 1.05 and a 9.50% required return. The risk-free rate is 4.20%. You now receive another $5.00 million, which you invest in stocks with an average beta of 0.65. What is the required rate of the return on the new portfolio? (Hint: You must first find the market risk premium and then find the new portfolio beta.)

a. 9.05%

b. 8.83%

c. 9.74%

d. 9.27%

e. 9.51%

problem3. Jane has a portfolio of 20 average stocks, and Dick has a portfolio of 2 average stocks. Assuming the market is in equilibrium, which of the following statements is CORRECT?

a. Dick's portfolio will have more diversifiable risk, the same market risk, and hence more total risk than Jane's portfolio however the required (and expected) returns will be the same on both portfolios.

b. The expected return on Jane's portfolio should be lower than the expected return on Dick's portfolio since Jane is more diversified.

c. The required return on Jane's portfolio will be lower than that on Dick's portfolio since Jane's portfolio will have less total risk.

d. Jane's portfolio will have less diversifiable risk and as well less market risk than Dick's portfolio.

e. If the two portfolios have the same beta, their required returns will be the same however Jane's portfolio will have less market risk than Dick's.

problem4. Suppose that in recent years both expected inflation and the market risk premium (rM - rRF) have declined. Suppose also that all stocks have positive betas. Which of the following would be most likely to have taken place as a result of these changes?

a. The required returns on all stocks have fallen by the same amount.

b. The required returns on all stocks have fallen however the fall has been greater for stocks with higher betas.

c. The required returns on all stocks have fallen however the decline has been greater for stocks with lower betas.

d. The average required return on the market, rM, has remained stable, but the required returns have fallen for stocks that have betas greater than 1.0.

e. Required returns have risen for stocks with betas greater than 1.0 but have declined for stocks with betas less than 1.0.

problem5. Stock A has a beta of 0.8 and Stock B has a beta of 1.2. 50% of Portfolio P is invested in Stock A and 50% is invested in Stock B. If the market risk premium (rM - rRF) were to rise but the risk-free rate (rRF) remained stable, which of the following would take place?

a. The required return would rise for both stocks but the increase would be greater for Stock B than for Stock A.

b. The required return on Portfolio P would remain unaffected.

c. The required return would rise for Stock B but reduce for Stock A.

d. The required return would reduce by the same amount for both Stock A and Stock B.

e. The required return would rise for Stock A but reduce for Stock B.

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M93490

Have any Question? 


Related Questions in Financial Accounting

1 discuss how marketing is often misunderstood by the other

1. Discuss how marketing is often misunderstood by the other functional areas of business. 2. What is the meaning of Balanced and Unbalanced Assignment Problems? 3. Describe the function of a Change Control Board 4. Disc ...

Effective-interest versus straight-line bond amortization

(Effective-Interest versus Straight-Line Bond Amortization) On January 1, 2013, Phantom Company acquires $200,000 of Spiderman Products, Inc. 9% bonds at a price of $185,589 The interest is payable each December 31, and ...

What are some different ways you could communicate a

What are some different ways you could communicate a concept for a new user interface for an automotive audio system? What are the strengths and weaknesses of each approach?

1-describe in detail the guidelines used for leading

1-Describe in detail the guidelines used for leading decision group meetings. 2-Explain leadership in? self-managed teams and the differences between internal and external leadership roles.

Accounting assignmentapplication break-even analysiswhen

Accounting Assignment Application: Break-Even Analysis When expenses and revenues are equal, this is known as the "break-even point" or BEP. To determine break-even, an examination of fixed and variable costs (expenses) ...

Assignment1500-1800 words assignment for paula hogpart 1as

Assignment 1500-1800 words assignment for Paula Hog Part 1 As EEC's corporate business financial analyst, you will need to have a clear understanding of the different types of costs (variable, fixed, and mixed) that the ...

Assignmentcost-volume-profit relationshipsread chapter 4 of

Assignment Cost-Volume-Profit Relationships Read Chapter 4 of your text. Refer to the review problem on pages 144 - 146. Pear Computer Corporation produces memory boards for PCs. Sales have been erratic, with some months ...

Tootsie roll industries2015 annual report analysis

Tootsie Roll Industries 2015 Annual Report Analysis Questions Net earnings refers to net income temporary investments are current assets Q1 Where are its corporate headquarters? on What date was tootsie roll's last annua ...

Select an organization corporate or nonprofit with which

Select an organization (corporate or nonprofit) with which you are somewhat familiar that uses both online and offline channels. Discuss two or three specific examples of how it is taking advantage of the Internet in gen ...

Definedescribediscuss database fields records tables

Define/Describe/Discuss Database (Fields, Records, Tables, Database) and Database Management Define/Discuss/Describe ERD: Relationships, Primary Keys, Foreign Keys, Cardinality, etc. Provide Examples. Define/Describe/Dis ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen