A particular stock has an expected return of 18%. If the expected return on
the market portfolio is 13%, and the risk-free rate is 5%, what's the stock's
CAPM beta?
1.000
1.625
2.250
1.385
Suppose that over the last 20 years, company XYZ has averaged a
return of 13%. Over the same period, the Treasury bond rate has
averaged 4%. The current estimate of the Treasury bond rate is 6.5%.
Using the historical approach, what is the estimate of XYZ's expected
return.
13.0%
16.5%
15.5%
19.5%
According to the CAPM (capital asset pricing model), the security
market line is a straight line. The intercept of this line should be equal
to
zero
the expected risk premium on the market portfolio
the risk-free rate
the expected return on the market portfolio
According to the CAPM (capital asset pricing model), what is the single factor
that explains differences in returns across securities?
the risk-free rate
the expected risk premium on the market portfolio
the beta of a security
the expected return on the market portfolio
the volatility of a security
The risk-free rate is 5% and the expected return on the market portfolio is
13%. A stock has a beta of 1.5, what is its expected return?
17%
12%
19.5%
24.5%
Suppose David can borrow and lend at the risk-free rate of 5%. Which of the
following three risky portfolios should he hold in combination with a position in
the risk-free asset?
portfolio with a standard deviation of 16% and an expected return of 12%
portfolio with a standard deviation of 20% and an expected return of 16%
portfolio with a standard deviation of 30% and an expected return of 20%
he should be indifferent in holding any of the three portfolios
A portfolio has 40% invested in Asset 1 and 60% invested in Asset 2. If Asset
1 has a beta of 1.2 and Asset 2 has a beta of 1.8, what's the beta of the
portfolio?
1.50
1.56
1.20
1.80
cannot tell
from the given
information
Investors can eliminate what type of risk by diversifying?
systematic risk
unsystematic risk
beta risk
total risk
he stock of Alpha Company has an expected return of 0.10
and a standard deviation of 0.25. The stock of Gamma
Company has an expected return of 0.16 and a standard
deviation of 0.40. The correlation coefficient between the two
stock's return is 0.2. If a portfolio consists of 40% of Alpha
Company and 60% of Gamma Company, what's the expected
return of the portfolio?
0.126
0.136
0.160
0.130
An investor put 40% of her money in Stock A and 60% in Stock B. Stock A
has a beta of 1.2 and Stock B has a beta of 1.6. If the risk-free rate is 5% and
the expected return on the market is 12%, what's the investor's expected
return?
22.28%
14.80%
15.08%
21.80%
An asset has a beta of 2.0 and an expected return of 20%. The
expected risk premium on the market portfolio is 5% and the risk-free
is 7%. The stock is
overpriced
underpriced
appropriately priced
Cannot tell from the given informatio
A portfolio consists 20% of a risk-free asset and 80% of a stock. The risk-free
return is 4%. The stock has an expected return of 15% and a standard
deviation of 30%. What's the expected return
12.8%
9.5%
15.0%
4.0%
Suppose Sarah can borrow and lend at the risk free-rate of 3%. Which of the
following four risky portfolios should she hold in combination with a position in
the risk-free asset?
portfolio with a standard deviation of 15% and an expected return of 12%
portfolio with a standard deviation of 19% and an expected return of 15%
portfolio with a standard deviation of 25% and an expected return of 18%
portfolio with a standard deviation of 12% and an expected return of 9%
A stock that pays no dividends is currently priced at $40 and is expected to
increase in price to $45 by year end. The expected risk premium on the
market portfolio is 6% and the risk-free is 5%. If the stock has a beta of 0.6,
the stock is
overpriced
underpriced
appropriately priced
Cannot tell from the given information
The stock of Alpha Company has an expected return of 18% and a beta of
1.5, and Gamma Company stock has an expected return of 15.6% and a beta
of 1.2. Assume the CAPM holds. What's the risk-free rate?
8.0%
6.0%
0%
4.7%
Suppose that over the last 20 years, company XYZ has averaged a return of
13%. Over the same period, the Treasury bond rate has averaged 4%. The
current estimate of the Treasury bond rate is 6.5%. Using the historical
approach, what is the estimate of XYZ's expected return.
13.0%
16.5%
15.5%
19.5%
The stock of Alpha Company has an expected return of 0.10 and a
standard deviation of 0.25. The stock of Gamma Company has an
expected return of 0.16 and a standard deviation of 0.40. The
correlation coefficient between the two stock's return is 0.2. If a
portfolio consists of 40% of Alpha Company and 60% of Gamma
Company, what's the expected return of the portfolio?
0.126
0.136
0.160
0.130
Week 7
The preferred technique for evaluating most capital
investments is
payback period
discount payback period
internal rate of return
net present value
You have a $1 million capital budget and must make the decision about which investments your
firm should undertake for the coming year. There are three projects available and the cash flows
of each project appear below. Assume a cost of capital of 12%. Which project or projects do you
select?
Project 1
Project 2
Project 3
Cash flow
Year 0
-$400,000
-$500,000
-$1,000,000
Year 1
200,000
300,000
500,000
Year 2
300,000
350,000
700,000
Year 3
300,000
350,000
700,000
Project 1
Project 2
Project 3
Project 1 & Project 2
Kelley Industries is evaluating two investment proposals. The scale of Project
1 is roughly 4 times that of the Project 2. The following data is provided for the
two investment alternatives.
IRR
Project 1
28%
Project 2
50%
Incremental project
26%
If the two projects are mutually exclusive, and the firm's hurdle rate is 18%,
which project should the firm choose?
project 1
project 2
the incremental project
both projects
The IRR method assumes that the reinvestment rate of cash flows is
the cost of capital
the IRR
essentially arbitrary
zero
The capital budgeting process involves
identifying potential investments and estimating the incremental cash
inflows and outflows of cash associated with each investment
analyzing and prioritizing the investments utilizing various decision criteria
implementing and monitoring the selected investment projects
estimating a fair rate of return on each investment given its risk
all of the above
You must know all the cash flows of an investment project to compute its
NPV, IRR, PI, and discount payback period
NPV, IRR, PI, payback period, and discount payback period,
NPV, PI, IRR
NPV, accounting rate of return, IRR, PI