7. If a stock does not pay dividends which of the B. The required return must eq

Question

7. If a stock does not pay dividends which of the B. The required return must equal the capital gains C. The company is likely to be sued by shareholders following must be true? A. The stock must have a value of so. 1o.which of the following descroes a toto that is A. A well-diversified portfolio has no B. A well-diversified portfolio has no systemani rk C. A well-diversified portfolio has no sk D. A well-diversified portfolio must have a beta of ield The market must expect that the stock will decrease in price. D. 8. Which one of the following portfolios will have a beta of zero? 11.The purpose of diversification is to do which of he A. A portfolio that is equally as risky as the overall following? 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 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. Which one of the following categories has the 12. The Capital Asset Pricing Model states that the highest risk premium for the period 1926-present? A. Small-company stocks B. US Treasury Bills expected return on a security depends on which of the following? (Circle your choice s). You may choose more than one. i.pure time value of money as measured by the risk- C. Long-term government bonds free rate ii.amount of systematic risk as measured by beta ii.the reward for bearing systematic risk as measured D. Large-company stocks by the market risk premium iv.the reward for bearing risk as measured by the standard deviation the table below to answer the next 3 questions

Explanation / Answer

As per rules, I am answering the first 4 questions

7. D The market must expect that the stock will decrease in price

(Most stock pricing models are based on expected dividend. A stock that pays no dividend will have lower price)

8. C: A portfolio comprised of only US Treasury stock

(A zero beta portfolio will have the same expected return as the risk free return. Hence a portfolio of only treasury stocks will have a beta of zero which means no correlation with market movements)

9. A: small company stocks

(Since these stocks pose the highest risk in the long run, they will have the highest risk premium)

10. A: A well diversified portfolio has no unsystematic risk

(unsystematic risk is tied directly to the performance of a particular security. diversification allows the investor to minimize the risk posed by a single security )

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