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Portfolio Analysis in Stock Market

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Questions and Answers

What is the risk-free rate of return used in the CAPM model?

4.6%
4.3%
The risk-free rate is not explicitly mentioned
There is only one risk-free rate (correct)

What is the market risk premium if the risk-free rate is 5% and the market return is 13%?

5%
8% (correct)
18%
13%

If an investor invests 70% in the market and 30% in Treasury bills, what is the portfolio beta?

0.3 (correct)
1.0
0.0
0.7

If the risk-free rate is 5% and the market risk premium is 8%, what is the required return for an investment with a beta of 0.7?

10.6% (A) Signup and view all the answers

What needs to be factored in when judging the value of beta and computing the required rate of return?

Both dividend payments and capital appreciation (A) Signup and view all the answers

In the given example, what is the expected rate of return for equity shareholders of Pearl Ltd. according to the Moderate Approach?

15.5% (C) Signup and view all the answers

If the market return is 12% and Pearl Ltd. expects a return of 15.5%, what is the implied risk premium?

3.5% (B) Signup and view all the answers

What is the purpose of the Capital Asset Pricing Model (CAPM)?

To estimate the required rate of return for an investment (D) Signup and view all the answers

If an investment has a beta of 0, what is its required rate of return according to the CAPM?

The risk-free rate (A) Signup and view all the answers

What is the relationship between beta and systematic risk in the CAPM?

Beta measures systematic risk (D) Signup and view all the answers

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