Question

1. If the risk/return performance of a stock lies above the Security Market Line, the stock is said to have a:

	a.	Positive covariance
	b.	Positive expected return
	c.	Positive correlation coefficient
	d.	Positive alpha

2. A bond has a 25-year maturity, an 8% annual coupon paid semiannually, and a face value of $1,000. The going nominal annual interest rate (rd) is 6%. What is the bond's price?

	A.	$1,515.25
	B.	$1,000
	C.	$1,257.30
	D.	$1,255.67

3. A manager who evaluates portfolios' investment performance adjusted for systematic risk is most likely to rank portfolio based on their

	a.	Correlation Coefficient
	b.	Sharpe's ratios
	c.	Treynor mearsures
	d.	R-squared

4.

Which of the following accounts is not tax-deferred?

	a.	Annuity
	b.	Mutual Fund
	c.	401(k) and Traditional IRA
	d.	Pension

Answer 1

Question: 1;

Note: All given questions are separate & independent. So as per rule I am answering first question only.

Answer is option (d). Positive alpha

Explanation;

If the risk/return performance of a stock lies above the Security Market Line then the stock is said to have a positive alpha.

For more detail let’s know something about alpha;

The difference between expected return and required return is known as alpha and If the stock is undervalued & it lies above the security market line then alpha will be positive. If the stock is overvalued & it falls below the security market line then alpha will be negative.

So on the basis of above explanation, it is clear that option (d) Positive alpha is the correct answer.