Financial investments KS

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The correlation coefficient between the returns on two stocks with different volatility equals zero. For an equally weighted portfolio of such stocks, the correlation has the implication that:

The portfolio variance must equal zero.

The expected risk premium of the portfolio must equal zero.

The portfolio has only unsystematic risk.

None of the above. (correct)

The beta of an individual security is a measure of:

Firm specific risk of the security.

Market risk of the security. (correct)

Risk adjusted return.

None of the above.

When you increase the number of assets in a portfolio:

The beta of the portfolio always increases.

The systematic risk of the portfolio always decreases.

The expected return of the portfolio always increases.

None of the above. (correct)

The Fama-French-Carhart model assumes that:

There exist four systematic risk factors that affect expected security returns. Signup and view all the answers

The CAPM beta of a stock equals one. This indicates that:

The expected return on the stock equals the expected return on the market portfolio according to the CAPM. Signup and view all the answers

Which of the following statements about options is correct:

Risk-neutral valuation works because the arbitrage free price of an option does not depend on investors risk aversion. Signup and view all the answers

An efficient stock market implies that:

None of the above. Signup and view all the answers

Which of the following statements about real options is correct:

The underlying asset of a real option is usually not traded on the stock exchange. Signup and view all the answers

The correlation coefficient between the returns on stock A and B equals 0.3. The standard deviation of the return on stock A and B are 0.25 and 0.35 respectively. The standard deviation of the return on a portfolio with 50% invested in stock A and 50% invested in stock B is closest to:

25% Signup and view all the answers

The CAPM assumes that:

All investors mix risk-free bonds and the market portfolio with weights that depend on their individual risk aversion. Signup and view all the answers

The beta of a stock in a CAPM regression is 0.75. The risk-free rate of return is 4% and the expected return on the market portfolio equals 9%. According to the CAPM, the expected return on this stock is closest to:

8% Signup and view all the answers

Diversification implies that:

The volatility of a two-stock portfolio is lower than the weighted average volatility of the two stocks. Signup and view all the answers

The alpha of a CAPM regressions measures:

The historical performance of the asset relative to the expected returns predicted by the CAPM. Signup and view all the answers

When increasing the number of assets in a portfolio:

None of the above Signup and view all the answers

The correlation coefficient between the returns on two stocks equals one. The correlation has the implication that:

There will be no diversification Signup and view all the answers

The CAPM beta of a stock equals zero. This indicates that:

The expected return on the stock equals the risk free return according to the CAPM. Signup and view all the answers

Which of the following statements about options is correct:

The value of an option depends on, among other factors, the volatility of the underlying asset. Signup and view all the answers

Which of the following statements about real options is correct:

A real option is usually an American option Signup and view all the answers

The correlation coefficient between the returns on stock A and B equals 0.5. The standard deviation of the return on stock A and B are 0.20 and 0.35 respectively. The standard deviation of the return on a portfolio with 25% invested in stock A and 75% invested in stock B is closet to: (0,250,2)^2 + (0,750,35)^2 + 20,50,250,750,2*0,35

30% Signup and view all the answers

An efficient stock market implies that:

None of the above. Signup and view all the answers

The beta of a stock in a CAPM regression is 1.5. The risk-free rate of return is 3% and the expected return on the market portfolio equals 8%. According to the CAPM, the expected return on this stock is closest to:

10% Signup and view all the answers

The CAPM assumes that:

Investors borrowing rate equals the risk-free interest rate. Signup and view all the answers

Diversification implies that:

The volatility of a two-stock portfolio is lower than the weighted average volatility of the two stocks. Signup and view all the answers

Financial investments KS

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Questions and Answers

The correlation coefficient between the returns on two stocks with different volatility equals zero. For an equally weighted portfolio of such stocks, the correlation has the implication that:

The beta of an individual security is a measure of:

When you increase the number of assets in a portfolio:

The Fama-French-Carhart model assumes that:

The CAPM beta of a stock equals one. This indicates that:

Which of the following statements about options is correct:

An efficient stock market implies that:

Which of the following statements about real options is correct:

The correlation coefficient between the returns on stock A and B equals 0.3. The standard deviation of the return on stock A and B are 0.25 and 0.35 respectively. The standard deviation of the return on a portfolio with 50% invested in stock A and 50% invested in stock B is closest to:

The CAPM assumes that:

The beta of a stock in a CAPM regression is 0.75. The risk-free rate of return is 4% and the expected return on the market portfolio equals 9%. According to the CAPM, the expected return on this stock is closest to:

Diversification implies that:

The alpha of a CAPM regressions measures:

When increasing the number of assets in a portfolio:

The correlation coefficient between the returns on two stocks equals one. The correlation has the implication that:

The CAPM beta of a stock equals zero. This indicates that:

Which of the following statements about options is correct:

Which of the following statements about real options is correct:

An efficient stock market implies that:

The beta of a stock in a CAPM regression is 1.5. The risk-free rate of return is 3% and the expected return on the market portfolio equals 8%. According to the CAPM, the expected return on this stock is closest to:

The CAPM assumes that:

Diversification implies that:

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