Which of the following statements is false? A) Market prices for assets are influenced by buyers who can derive the most value from them. B) Asset markets ensure that the price of an asset is the highest price an asset can command. C) Buyers with the most information about an asset are likely to increase […]
Date: September 19th, 2020
If Geek Computer has a beta of 1.1, the return from Treasury bills is 3% and the return from the market portfolio is 20%, what is the required return from Geek stock? A) 20.0% B) 22.8% C) 15.7% D) 18.7% E) 21.7% ANSWER E
Date: September 19th, 2020
The truly wonderful thing about diversification is that 100% of risk can be diversified away, given a large enough portfolio. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: Only unsystematic risk can be diversified away, not total risk.
Date: September 19th, 2020
Treasury bills have a beta of ________. A) 0.0 B) 0.50 C) 1.00 D) The beta for a Treasury bill will vary from period to period. ANSWER Answer: A
Date: September 19th, 2020
Optimal risk reduction takes place when combining assets whose correlation coefficient is 0.0. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: Optimal risk reduction takes place when combining assets whose correlation coefficient is -1.0.
Date: September 19th, 2020
Kip owns the following portfolio of securities. What is the beta for the portfolio? Company Beta Percent of Portfolio Apple .82 50% Ford 2.53 30% Federal Express 1.67 20% A) 1.00 B) 1.50 C) 1.74 D) 1.98 ANSWER Answer: B Explanation: B) βp = Σ βi ∗ wi = .82 ∗ 50% + […]
Date: September 19th, 2020
While the covariance between stocks can take on a negative value, a correlation coefficient must be positive, or at a minimum, zero. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: Correlation coefficients can range from a value of +1.0 to -1.0.
Date: September 19th, 2020
Richard owns the following portfolio of securities. What is the beta for the portfolio? Company Beta Percent of Portfolio Apple 2.50 25% Wells Fargo 0.65 50% eBay 1.70 25% A) 1.00 B) 0.65 C) 1.62 D) 1.38 ANSWER Answer: D Explanation: D) βp = Σ βi ∗ wi = 2.5 ∗ 25% + […]
Date: September 19th, 2020
The more positive the degree of correlation between two assets, the greater the risk reduction when the assets are combined. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: The LOWER the degree of correlation between two assets, the greater the risk reduction when the assets are combined.
Date: September 19th, 2020
Define diversification. What are the benefits to diversification? Will diversification always lead to greater expected portfolio returns? What will be an ideal response? ANSWER Answer: Diversification is the practice of spreading your investment among different assets in an attempt to reduce the variability or uncertainty of returns. The benefit lies in the reduction […]
Date: September 19th, 2020
