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

Accounting - financial statement projectobjectivethe

Accounting - Financial Statement Project Objective: The project is meant to show your ability to analyze financial statements of selected companies in depth on a particular accounting method or standard. Submission: Hard ...

Recently you were assigned to manage a project for your

Recently, you were assigned to manage a project for your company. You have constructed a network diagram depicting the various activities in the project? (shown below to the? right). In? addition, you have asked your tea ...

Nbspaccounting assignmentbelow are the balance sheet and

Accounting Assignment Below are the balance sheet and income statement for Happy Hamburger Company. Happy Hamburger Company Balance Sheet as of December 31, 20XX Assets Liabilities and Shareholder Equity Cash 78,000 Acco ...

Assignmentat this point you have examined three years of

Assignment At this point you have examined three years of financial statements for your firm and produced a proforma statement. You have also determined their sustainable growth rate as well. You have also learned about ...

Forecasting and preparing financial statementstina one of

Forecasting and Preparing Financial Statements Tina, one of your friends, approached you and proposed a partnership in a new venture that she is planning to start-a fashion boutique that will sell women's clothing and ac ...

Half a page double spaced answering the 2 questions on 4

Half A Page double spaced answering the 2 questions on "4 corners COMMUNITY NURSERY INC." 1.) Discuss the financial statements...are there financial trends that show the org is meeting its mission? 2.) The analysis of th ...

Assignment excel spreadsheet projecton december 31 2016

Assignment: Excel Spreadsheet Project On December 31, 2016, Carson Company rendered services to Lincoln Corporation at an agreed price of $125,939, accepting $50,000 down and agreeing to accept the balance in three equal ...

Assignment in wileyplusexercise 1indicate whether each of

Assignment in WileyPLUS Exercise 1 Indicate whether each of the following statements is true or false. 1. The corporation is an entity separate and distinct from its owners. 2. The liability of stockholders is normally l ...

Assignment business plan - finalthis assignment consists of

Assignment: Business Plan - Final This assignment consists of two sections: your final business plan and your business plan financials. Note: You must submit both sections as separate files for the completion of this ass ...

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 ...

  • 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