Quiz Ch 08 – Clarifying Statements about Risk and Investments
Fundamentals of Financial Management, Concise
Brigham and Houston
09th Edition
Which statement is accurate about risk and investments?
Which statement is accurate about risk and investments?
Given the data on Stocks A and B, which statement is accurate?
Given Stock A (10% expected return, 20% standard deviation) and Stock B (13% expected return, 30% standard deviation), with a 5% risk-free rate and a 6% market risk premium, and assuming equilibrium, Portfolio AB is divided 50-50. Both stocks have independent returns (zero correlation). Which statement is TRUE?
Given Stock A (beta: 1.2, standard deviation: 25%) and Stock B (beta: 1.4, standard deviation: 20%), forming Portfolio AB with a beta of 1.25 and a standard deviation of 18%. Which statement is TRUE?
With a risk-free rate of 6% and a market risk premium of 5%, your $1 million portfolio is divided into $700,000 invested in a stock with a beta of 1.2 and $300,000 in a stock with a beta of 0.8. Which statement below is true?
True or false: The CAPM, a multi-period model, considers securities’ maturities and aids in establishing the required rate of return at different systematic risk levels.
True or false: If two investors possess single portfolios, and assume equal unsystematic risks for stocks in both portfolios, Investor A’s portfolio with a beta of -2.0 and Investor B’s portfolio with a beta of +2.0 encounter identical levels of risk. Nevertheless, holders of either portfolio can decrease their risks by the same degree by incorporating “normal” stocks with a beta of 1.0.