A. Increase the expected risk premium B. Reduce the beta of the portfolio to zer

Question

A. Increase the expected risk premium B. Reduce the beta of the portfolio to zero C Increase the security's risk premium D. Reduce the portfolio's systematic risk level E. Reduce the portfolio's unsystematic risks portfolio has no risk portfolio must have a beta of 1. D A Which one of the following portfolios will have a beta of zero? A. A portfolio that is equally as risky as the overall 11. The Capital Asset Pricing Model states that the market B. A portfolio that consists of a single stock C. A portfolio comprised of only US Treasury bonds. D. No portfolio can have a beta of zero. expected return on a security depends on whick the following? (Circle your choice(s). You may choose more than one.) i.pure time value of money as measured by th free rate il.amount of systematic risk as measured by b 9. Which one of the following categories has the ii.the reward for bearing systematic risk as ma highest risk premium for the period 1926-present? A. Small-company stocks B. US Treasury Bills C. Long-term government bonds D. Large-company stocks by the market risk premium iv.the reward for bearing risk as measured by standard deviation 12.Given that investors can diversify, which following risks is irrelevant? (In other wor risk does not matter?) A. Unsystematic risk B. Market risk C. Non-diversifiable risk D. Systematic risk E. All risks are always relevant ely to have the least unsystematic risk? 13.Which of the following portfolios of stocks is lik Nike Best Buy Starbucks Ap Starbucks Ford Nike Apple Ford Microsoft Starbucks Target Nike Starbucks CVS Use the table below to answer the next 3 questions: 14. Which stock has the greatest systemat A. A because it has the higher standard devia Stock Standard Beta Deviation 0.8-_B. B because it has the higher beta 25 0.15 15.Which stock has the greatest total risk? A. A because it has the higher standard deviation 8. 8 because it has the higher beta 16. According to the CAPM, which stock should have the greatest expe 4. A because it has the higher standard deviation 8. B because it has the higher beta

Explanation / Answer

14. Systematic risk is measured by Beta. Beta of market portfolio is 1. Beta higher than one is considered to be risky and Beta lower than 1 is considered to be less risky.

Ans is B.

15. Standard deviation is a measure of total risk of a stock/ portfolio. In this case, standard deviation of A is higher.

Ans is A.

16. As per CAPM, the security with greatest total risk should have the greatest expected return.

Ans is A.

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