According to the CAPM, what is the rate of return of a portfolic Portfolio Retur
ID: 2801764 • Letter: A
Question
According to the CAPM, what is the rate of return of a portfolic Portfolio Return (LO3, CFA1) with a beta of 1? a. Between R.. and R b. The risk-free rate, R c. Beta x(RM-R) d. The return on the market, R, 1. 2. Stock Return 01, CFA4) The return on a stock is said to have which two of the following basic parts'? a. An expected return and an unexpected return b. A measurable return and an unmeasurable return. c. A predicted return and a forecast return. d. A total return and a partial return. 3. News Components (LO1, CFA4) A news announcement about a stock is said to have which two of the following parts? a. An expected part and a surprise b. Public information and private information. c. Financial information and product information. d. A good part and a bad part. News Effects (LO1, CFA4) the previous year, which matches analysts' expectations. What is the likely effect on the stock price? a. The stock price will increase. b. The stock price will decrease. c. The stock price will rise and then fall after an overreaction d. The stock price will not be affected. 4. A company announces that its earnings have increased 50 percent over 5. News Effects (LO1, CFA4) A company announces that its earnings have decreased 25 per cent from the previous year, but analysts expected a small increase. What is the likely effect on the stock price? a. The stock price will increase. b. The stock price will decrease. c. The stock price will rise and then fall after an overreaction. d. The stock price will not be affected. if6. News Effects (Lo1, CfA4) A company announces that ts earnings have inreased 2 percent from the previous year, but analysts actually expected a 50 percent increase. What is the likely effect on the stock price?Explanation / Answer
1.
Option d. the return on the market Rm is correct
CAPM rate of return on portfolio=rf+beta*(Rm-Rf)
Where beta =1
=rf+1*(rm-rf)=rf+rm-rf
=rm
2.
Option c. a predicted return and a forecast return is correct
3.
Option a. An expected part and a surprise is correct
4.
Option d. the stock price will not be affected is correct
Because the price of the stock already influenced by the expected information.
5.
Option b. stock price will decrease is correct
Because the price of the stock already influenced by the expected information and later on when actual result deviate the price of the stock is deviate accordingly.
6.
Option b. stock price will decrease is correct
Because the price of the stock already influenced by the expected information and later on when actual result deviate the price of the stock is deviate accordingly.
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