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,...

Q1. Which of the following statements about the portfolio is
true?
a. The expected return of a portfolio is NOT the weighted
average of the expected returns of all individual stocks in the
portfolio.
b. The standard deviation of a portfolio is NOT the weighted
average of the standard deviations of all individual stocks in the
portfolio.
c. Portfolio beta is NOT the weighted average of the beta values
of all individual stocks in the portfolio
Q2. Which of the...

Enter the name and Beta for stocks in your portfolio (max 5) 2.
Market return (rm) – Your input of market rate of return, rm, can
be based on past returns or projected future returns. Economist
Peter Bernstein famously calculated that over the last 200 years,
the stock market has returned an average of 9.6% per year. So use
this as the systemic risk rate (rm). 3. Risk-free return (rrf):
U.S. Treasury bills and bonds are most often used as...

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...

STOCK PERCENTAGE OF PORTFOLIO
BETA EXPECTED RETURN
1 20% 0.95 16%
2 10% 0.90 13%
3 25% 1.15 20%
4 5% 0.70 12%
5 40% 1.55 25%
(Portfolio beta and security market line) You own a portfolio
consisting of the following stocks:. The risk-free rate is 4
percent.Also, the expected return on the market portfolio is 10
percent.
a. Calculate the expected return of your portfolio. (Hint: The
expected return of a portfolio equals the weighted average of the
individual...

The beta of any portfolio can be computed as the
a. slope of the security market line
b. sum of the betas for each asset held in the portfolio divided
by the number of assets in the portfolio.
c. weighted average of the betas for each asset held in the
portfolio.
d. the standard deviation of the expected returns of the
portfolio minus the risk-free rate.

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