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WEEK 4 - CAPM

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Questions and Answers

Which of the following is correct?

It is possible that an asset has a beta of zero, and its return would be higher than the riskfree rate.

Like the correlation, the Beta must be between -1 and 1.

The shares of Southern Co. have traded close to $12 for most of the past three years. Since Southern’s stock has demonstrated very little price movement, the stock has a low beta. Texas Instruments, on the other hand, has traded as high as $150 and as low as its current $75. Since TI’s stock has demonstrated a large amount of price movement, the stock has a very high beta.

It is possible that an asset has a negative beta, and its return would be less than the riskfree rate. (correct)

. You own a stock portfolio invested 10 percent in Stock Q , 35 percent in Stock R , 20 percent in Stock S , and 35 percent in Stock T . The betas for these four stocks are 0.75, 1.90, 1.38, and 1.16, respectively. What is the portfolio beta?

1.42 (correct)

0.42

0.78

1.33

If a security has a beta of 1.4, then as the market return increased by 10%, the security:

Decreases by 7%

Increases by 14% (correct)

Decreases by 14%

Increases by 7%

A stock has an expected return of 13.1 percent, a beta of 1.28, and the expected return on the market is 11 percent. What must the risk-free rate be?

3.5% Signup and view all the answers

Which of the following is NOT an assumption of CAPM?

There are taxes and transaction costs to account for in the capital markets Signup and view all the answers

Which of the following is TRUE?

The beta of the market portfolio is 1 Signup and view all the answers

You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.65 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio?

1.35 Signup and view all the answers

WEEK 4 - CAPM

Choose a study mode

Podcast

Questions and Answers

Which of the following is correct?

. You own a stock portfolio invested 10 percent in Stock Q , 35 percent in Stock R , 20 percent in Stock S , and 35 percent in Stock T . The betas for these four stocks are 0.75, 1.90, 1.38, and 1.16, respectively. What is the portfolio beta?

If a security has a beta of 1.4, then as the market return increased by 10%, the security:

A stock has an expected return of 13.1 percent, a beta of 1.28, and the expected return on the market is 11 percent. What must the risk-free rate be?

Which of the following is NOT an assumption of CAPM?

Which of the following is TRUE?

You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.65 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio?

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