Finance 534 week 5 quiz 4\t\u00a0\tQuestion 1\t \ufffd \ufffd\u00a0 Assume that in recent years both expected inflation and the market risk premium (rM\t\u2212 rRF) have declined.\u00a0 Assume also that all stocks have positive betas.\u00a0 Which of the following would be most likely to have occurred as a result of these changes?\tAnswer \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\u00a0\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 2\t\u00a0\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Assume that the risk-free rate is 5%.\u00a0 Which of the following statements is CORRECT?\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\t\u00a0\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 3\t\u00a0\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Which of the following statements is\tCORRECT?\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 4\t\u00a0\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 A highly risk-averse investor is considering adding one additional stock to a 3-stock portfolio, to form a 4-stock portfolio.\u00a0 The three stocks currently held all have b = 1.0, and they are perfectly positively correlated with the market.\u00a0 Potential new Stocks A and B both have expected returns of 15%, are in equilibrium, and are equally correlated with the market, with r = 0.75.\u00a0 However, Stock A’s standard deviation of returns is 12% versus 8% for Stock B.\u00a0 Which stock should this investor add to his or her portfolio, or does the choice not matter?\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer: \ufffd\u00a0\u00a0\u00a0\u00a0\t\u00a0\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 5\t\u00a0\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Which of the following statements is CORRECT?\u00a0 (Assume that the risk-free rate is a constant.)\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer: \ufffd\u00a0\u00a0\u00a0\u00a0\t\u00a0Question 6\t\u00a0\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 During the coming year, the market risk premium (rM \u2212 rRF), is expected to fall, while the risk-free rate, rRF, is expected to remain the same.\u00a0 Given this forecast, which of the following statements is CORRECT?\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer:\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 7\t2 out of 2 points\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Stock A’s beta is 1.5 and Stock B’s beta is 0.5.\u00a0 Which of the following statements must be true, assuming the CAPM is correct.\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer:\t\u00a0Question 8\t\u00a0\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Bob has a $50,000 stock portfolio with a beta of 1.2, an expected return of 10.8%, and a standard deviation of 25%.\u00a0 Becky also has a $50,000 portfolio, but it has a beta of 0.8, an expected return of 9.2%, and a standard deviation that is also 25%.\u00a0 The correlation coefficient, r, between Bob’s and Becky’s portfolios is zero.\u00a0 If Bob and Becky marry and combine their portfolios, which of the following best describes their combined $100,000 portfolio?\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer:\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 9\t\u00a0\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Stock A’s beta is 1.5 and Stock B’s beta is 0.5.\u00a0 Which of the following statements must be true about these securities?\u00a0 (Assume market equilibrium.)\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer: \ufffd\u00a0\u00a0\u00a0\u00a0\tThe expected return on Stock A should be greater than that on B.\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 10\t\u00a0\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 For a portfolio of 40 randomly selected stocks, which of the following is most likely to be true?\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer: \ufffd\u00a0\u00a0\u00a0\u00a0\t\u00a0Question 11\t\u00a0\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Which of the following statements is CORRECT?\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 12\t\u00a0\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 You have the following data on three stocks:\t\u00a0\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0 Stock \ufffd \ufffd \ufffd Standard Deviation \ufffd \ufffd \ufffd\u00a0 Beta\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\u00a0 A \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd 20% \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 0.59\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\u00a0 B \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd 10% \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 0.61\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\u00a0 C \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd 12% \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 1.29\t\u00a0\tIf you are a strict risk minimizer, you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.\tAnswer \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\u00a0\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer:\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 13\t2 out of 2 points\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Stock A has a beta of 0.8, Stock B has a beta of 1.0, and Stock C has a beta of 1.2.\u00a0 Portfolio P has equal amounts invested in each of the three stocks.\u00a0 Each of the stocks has a standard deviation of 25%.\u00a0 The returns on the three stocks are independent of one another (i.e., the correlation coefficients all equal zero).\u00a0 Assume that there is an increase in the market risk premium, but the risk-free rate remains unchanged.\u00a0 Which of the following statements is CORRECT?\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer: \ufffd\u00a0\u00a0\u00a0\u00a0\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 14\t\u00a0\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Which is the best measure of risk for a single asset held in isolation, and which is the best measure for an asset held in a diversified portfolio?\tAnswer \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\u00a0\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer:\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 15\t\u00a0\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Which of the following statements is CORRECT?\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer:\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 16\t\u00a0\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 If in the opinion of a given investor a stock’s expected return exceeds\tits required return, this suggests that the investor thinks\tAnswer \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\u00a0\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer:\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 17\t\u00a0\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 The preemptive right is important to shareholders\tbecause it\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer:\t\u00a0\t\u00a0Question 18\t2 out of 2 points\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Stocks X and Y have the following data.\u00a0 Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?\t\u00a0\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 X \ufffd \ufffd \ufffd \ufffd\u00a0 Y\u00a0\tPrice \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 $25 \ufffd \ufffd \ufffd\u00a0\u00a0 $25\tExpected dividend yield \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 5% \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 3%\tRequired return \ufffd\u00a0\u00a0\u00a0\u00a0 \ufffd \ufffd \ufffd \ufffd\u00a012% \ufffd \ufffd \ufffd\u00a0 10%\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer: \ufffd\u00a0\u00a0\u00a0\u00a0\tStock X pays a higher dividend per share than Stock Y.\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 19\t2 out of 2 points\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Companies can issue different classes of common stock.\u00a0 Which of the following statements concerning stock classes is CORRECT?\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd\u00a0\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 20\t\u00a0\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 The required returns of Stocks X and Y are rX = 10% and rY\t= 12%.\u00a0 Which of the following statements is CORRECT?\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer:\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 21\t\u00a0\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Stocks A and B have the following data.\u00a0 Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?\t\u00a0\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 A \ufffd \ufffd \ufffd \ufffd\u00a0 B\u00a0\tPrice\u00a0\u00a0 \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0$25 \ufffd \ufffd \ufffd\u00a0\u00a0 $40\tExpected growth \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd 7% \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 9%\tExpected return \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd 10% \ufffd \ufffd \ufffd\u00a0 12%\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer:\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 22\t\u00a0\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Stocks X and Y have the following data.\u00a0 Assuming the stock market is efficient and the stocks are in equilibrium, which of\tthe following statements is CORRECT?\t\u00a0\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 X \ufffd \ufffd \ufffd \ufffd\u00a0 Y\u00a0\tPrice\u00a0\u00a0 \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0$30 \ufffd \ufffd \ufffd\u00a0\u00a0 $30\tExpected growth (constant) \ufffd \ufffd\u00a0\u00a0\u00a0 6% \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 4%\tRequired return \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd 12% \ufffd \ufffd \ufffd\u00a0 10%\tAnswer \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\u00a0\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer: \ufffd\u00a0\u00a0\u00a0\u00a0\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 23\t2 out of 2 points\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Which of the following statements is CORRECT?\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer:\t\u00a0\t\u00a0Question 24\t2 out of 2 points\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Stocks A and B have the same price and are in equilibrium, but Stock A has the higher required rate of return.\u00a0 Which of the following statements is CORRECT?\tAnswer \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\u00a0\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer: \ufffd\u00a0\u00a0\u00a0\u00a0\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 25\t0 out of 2 points\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Stocks A and B have the following data.\u00a0 Assuming\tthe stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?\t\u00a0\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 A \ufffd \ufffd \ufffd \ufffd\u00a0 B\u00a0\tRequired return \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd 10% \ufffd \ufffd \ufffd\u00a0 12%\tMarket price \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0 $25 \ufffd \ufffd \ufffd\u00a0\u00a0 $40\tExpected growth \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd7% \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 9%\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer:\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 26\t2 out of 2 points\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 An increase in a firm’s expected growth rate would cause its required rate of return to\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer:\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 27\t2 out of 2 points\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 If markets are in equilibrium, which of the following conditions will exist?\tAnswer \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\u00a0\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer:\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 28\t0 out of 2 points\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Two constant growth stocks are in equilibrium, have the same price, and have the same required rate of return.\u00a0 Which of the following statements is CORRECT?\tAnswer \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\u00a0\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer:\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 29\t2 out of 2 points\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 For a stock to be in equilibrium, that is, for there to be no long-term pressure for its price to depart from its current level, then\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer:\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t\u00a0Question 30\t0 out of 2 points\t \ufffd \ufffd\u00a0\t \ufffd \ufffd\u00a0 Which of the following statements is CORRECT, assuming stocks are in equilibrium?\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\t \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\tCorrect Answer:<\/p>\n","protected":false},"excerpt":{"rendered":"
Finance 534 week 5 quiz 4 \u00a0 Question 1 \ufffd \ufffd\u00a0 Assume that in recent years both expected inflation and the market risk premium (rM \u2212 rRF) have declined.\u00a0 Assume also that all stocks have positive betas.\u00a0 Which of the Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-216894","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/216894","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=216894"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/216894\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=216894"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=216894"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=216894"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}