1. What two elements are represented in security returns? A. A premium for marke
ID: 2707140 • Letter: 1
Question
1. What two elements are represented in security returns?
A. A premium for market risk and for unique risk
B. A premium for unique risk and a premium for firm-specific risk
C. A premium for diversification and a premium for portfolio risk
D. A premium for time value of money and a premium for market risk
2. A stock's beta measures the:
A. average return on the stock.
B. variability in the stock's returns compared to that of the market portfolio.
C. difference between the return on the stock and return on the market portfolio.
D. market risk premium on the stock.
3. Based on the following information, make an estimate of the stock's beta: Month 1 = Stock +1.5%, Market +1.1%; Month 2 = Stock +2.0%, Market +1.4%; Month 3 = Stock -2.5%, Market -2.0%.
A. Beta is greater than 1.0.
B. Beta is less than 1.0.
C. Beta equals 1.0.
D. There is no consistent pattern of returns.
Explanation / Answer
D. A premium for time value of money and a premium for market risk
B. variability in the stock's returns compared to that of the market portfolio.
A. Beta is greater than 1.0
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