Question

Which of the following statements is CORRECT?

Select one: a. The beta of a portfolio of stocks is always smaller than the betas of any of the individual stocks.

b. The beta of a portfolio of stocks is always larger than the betas of any of the individual stocks.

c. It is theoretically possible for a stock to have a beta of 1.0. If a stock did have a beta of 1.0, then, at least in theory, its required rate of return would be equal to the risk-free (default-free) rate of return, rRF.

d. The beta coefficient of a stock is normally found by regressing past returns on a stock against past market returns. One could also construct a scatter diagram of returns on the stock versus those on the market, estimate the slope of the line of best fit, and use it as beta. However, this historical beta may differ from the beta that exists in the future.

e. If you found a stock with a zero historical beta and held it as the only stock in your portfolio, you would by definition have a riskless portfolio.

Answer #1

**Statement ( d ) is CORRECT.**

**The beta coefficient of a stock is normally found by
regressing past returns on a stock against past market returns. One
could also construct a scatter diagram of returns on the stock
versus those on the market, estimate the slope of the line of best
fit, and use it as beta. However, this historical beta may differ
from the beta that exists in the future.**

Portfolio beta is the weighted average of the beta of teh individual stocks in the portfolio where the weights are the proportion of amounts invested in portfolio for individual stocks. so the portfolio beta can be lesser or higher than the beta of the individual stocks.

Also if a stock has beta of 1 it required rate of return will be equal to the market return.

2. Which of the following statements concerning beta is
correct?
a. A stock with a beta of 0 is expected to provide a rate of
return equal to the market portfolio
b. A stock with a beta equal to 1 has no risk
c. Stocks with negative betas have the least amount of risk
FALSE
d. A stock with a beta greater than 1 is expected to be more
volatile than the market portfolio

Which of the following statements is true?
Select one:
A. Beta identifies the appropriate level of risk for which an
investor should be compensated.
B. Unsystematic risk is not diversifiable, so there is no reward
for taking on such risk.
C. Stocks with same betas will always earn different
returns.
D. The market risk premium is calculated by multiplying beta by
the difference between the expected return on the market and the
risk-free rate of return.

Which of the following
statements is CORRECT?
Select one:
a. Collections Inc. is in the business of collecting past-due
accounts for other companies, i.e., it is a collection agency.
Collections' revenues, profits, and stock price tend to rise during
recessions. This suggests that Collections Inc.'s beta should be
quite high, say 2.0, because it does so much better than most other
companies when the economy is weak.
b. Suppose the returns on two stocks are negatively correlated.
One has a...

Which of the following statements about the beta coefficient is
false?
A
A stock’s beta coefficient measures its volatility relative to
the market portfolio.
B
A stock’s beta coefficient can be estimated by plotting the
stock’s returns versus the market portfolio’s returns.
C
A stock’s reported beta coefficient is based on forecasted
future volatility.
D
A stock with a beta coefficient greater than 1.0 is said to be
riskier than the market portfolio.
E
Using the capital asset pricing model,...

QUESTION 17
Which of the following statements is most correct?
a. An increase in expected inflation could be expected to
increase the required return on a riskless asset and on an average
stock by the same amount, other things held constant.
b. A graph of the SML would show required rates of return on the
vertical axis and standard deviations of returns on the horizontal
axis.
c. If two "normal" or "typical" stocks were combined to form a
2-stock portfolio,...

Stock X has a beta of 0.5 and Stock Y has a beta of 1.5. Which
of the following statements is most correct?
Select one:
a. If expected inflation increases (but the market risk premium
is unchanged), the required returns on the two stocks will decrease
by the same amount.
b. If investors' aversion to risk decreases (assume the
risk-free rate unchanged), Stock X will have a larger decline in
its required return than will stock Y.
c. If you...

Conceptual questions on beta
A stock’s contribution to the market risk of a well-diversified
portfolio is called risk. According to the Capital
Asset Pricing Model (CAPM), this risk can be measured by a metric
called the beta coefficient, which calculates the degree to which a
stock moves with the movements in the market.
Based on your understanding of the beta coefficient, indicate
whether each statement in the following table is true or false:
Statement
True
False
A stock that is...

Excel Online Structured Activity: CAPM, portfolio risk, and
return
Consider the following information for three stocks, Stocks A,
B, and C. The returns on the three stocks are positively
correlated, but they are not perfectly correlated. (That is, each
of the correlation coefficients is between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
8.70
%
16
%
0.8
B
10.30
16
1.2
C
11.50
16
1.5
Fund P has one-third of its funds invested in each of the...

Which of the following statements is most correct?
The required rate of return of a diversified portfolio with Beta
of 1 is typically greater than the Market Risk Premium.
A stock with a negrative beta must have a negative required rate
of return.
If a stock's beta doubles its required rate of return must
double.
If a stock has a beta equal to 1.0, its required rate of return
will be unaffected by changes in the market risk premium.
None...

Assume that CAPM holds. Which of the following statements is
TRUE?
a)Beta indicates a stock’s diversifiable risk
b)Two stocks with the same stand-alone risk must have the same
betas
c)The slope of the security market line is given by the market
risk premium
d)If the beta of a Stock doubles, then its required rate of
return must also double
e)If the risk-free rate decreases, then the market risk premium
must also decrease

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