tock D 18) Systematic risk is also referred to as a A) business specific risk B)
ID: 2781067 • Letter: T
Question
tock D 18) Systematic risk is also referred to as a A) business specific risk B) internal risk C) non-diversifiable risk D) maturity risk 19) Suppose you invest $20,000 into the following portfolio of stocks: 200 shares of Abbott Labs (ABT) at $50 per share, 200 shares of Lowes (LOW) at $30 per share, and 100 shares of Ball Corporation (BLL) at $40 per share. suppose over the next year Ball has a return of 12.5%, Lowes has a return of 21%, and Abbott Labs has a return of -10%. Given this information, what is the annual rte of return on your portfolio? A) 10.55% B) 7.6% C) 3.8% D) 23.50% 20) What is the expected annual return on XYZ stock if it has a beta of 1.5, the expected return from a market portfolio is 18% per year, and the expected return from a risk-free investment is 2% per year? A) 56% B) 61% C) 24% D) 26%Explanation / Answer
18.) Systematic risk is also referred to as non-diversifiable risk.
This represents volatility and is classified as market risk as it is inherent to complete market.
19.) Abbot Labs - 200 shares @ $50 per share -10.00%
Lowes - 200 shares @ $30 per share 21.00%
Ball - 100 shares @ $40 per share 12.50%
Total Return on Portfolio = Weighted average of returns
= {200x50x(-10) + 200x30x21 + 100x40x12.50} / (200x50 + 200x30 + 100x40)
= 76,000/20,000
= 3.80%
Hence, Option-(c) is correct
20.) Beta =1.5
Market Return =18%
Risk Free Return =2%
Using CAPM Model,
E = 2 + 1.50x(18-2)
= 2 + 24.0
=26.0
Hence, option-(d) is correct
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