19.If a security is more volatile than the market as a whole,it will have a beta,whereas if a security is less volatile than the market as a whole,it will have a beta (a)equal to 1;less then 1 (b)greater than 2;greater than I (c)less than 1;greater than 1 (d)greater than 1:less than 1 Answer:(d) 20.If you are examining a stock that has a beta of 2,according to the CAPM,what should be its expected rate of return?Let the market risk premium=0.07. (a)the risk-free rate plus 0.035 (b)the risk-free rate plus 0.07 (c)the risk-free rate plus 0.14 (d)the risk-free rate plus 2.00 Answer:(c) 21. refers to the difference between the average rate of return on a security or a portfolio of securities and its SML relation. a. Alpha b. Beta c. Delta d Gamma Answer:(a) 22.A beta of 1.5 for a security indicates (a)the security has below average market-related risk (b)the security has no market-related risk (c)the security has above average market-related risk (d)the security has average market-related risk Answer:(c) 13-6
13-6 19. If a security is more volatile than the market as a whole, it will have a beta ________, whereas if a security is less volatile than the market as a whole, it will have a beta ________. (a) equal to 1; less then 1 (b) greater than 2; greater than 1 (c) less than 1; greater than 1 (d) greater than 1; less than 1 Answer: (d) 20. If you are examining a stock that has a beta of 2, according to the CAPM, what should be its expected rate of return? Let the market risk premium = 0.07. (a) the risk-free rate plus 0.035 (b) the risk-free rate plus 0.07 (c) the risk-free rate plus 0.14 (d) the risk-free rate plus 2.00 Answer: (c) 21. ________ refers to the difference between the average rate of return on a security or a portfolio of securities and its SML relation. a. Alpha b. Beta c. Delta d. Gamma Answer: (a) 22. A beta of 1.5 for a security indicates ________. (a) the security has below average market-related risk (b) the security has no market-related risk (c) the security has above average market-related risk (d) the security has average market-related risk Answer: (c)
23.The risk-free rate of return for a security is 6%.The expected return on the market is 13%.What is the required rate of return for the security if it has a beta of 1.25? (a)22.25% (b)16.25% (c)14.75% (d8.75% Answer:(c) 24.Determine the beta of a portfolio consisting of the following stocks: Security Invested Beta REM 30% 1.1 ACX 20% 0.95 BGB 40% 1.2 CRY 10% 0.7 (a）0.92 (b)0.99 (c)1.07 (d)1.17 Answer:(c) 25.If the Treasury bill rate is currently 4%and the expected return on the market portfolio for the same period is 13%,determine the risk premium on the market. (a)0.52% (b)8.50% (c)9.00% (d11.00% Answer:(b) 13-7
13-7 23. The risk-free rate of return for a security is 6%. The expected return on the market is 13%. What is the required rate of return for the security if it has a beta of 1.25? (a) 22.25% (b) 16.25% (c) 14.75% (d) 8.75% Answer: (c) 24. Determine the beta of a portfolio consisting of the following stocks: Security % Invested Beta REM 30% 1.1 ACX 20% 0.95 BGB 40% 1.2 CRY 10% 0.7 (a) 0.92 (b) 0.99 (c) 1.07 (d) 1.17 Answer: (c) 25. If the Treasury bill rate is currently 4% and the expected return on the market portfolio for the same period is 13%, determine the risk premium on the market. (a) 0.52% (b) 8.50% (c) 9.00% (d) 11.00% Answer: (b)
26.If the Treasury bill rate is currently 4%and the expected return on the market portfolio for the same period is 13%,what is the equation of the CML if the standard deviation is 0.25? (a)Er）=0.04+0.36o (b)Er）=0.04+0.09o (c)Er）=0.09+0.36o (dEr）=0.09+0.16o Answer:(a) 27.Peggy has just been informed that the expected return from her portfolio is 15.5%.If 45%of Peggy's securities have an expected return of 10.8%and 25%have an expected return of 16.5%,what is the expected return of the remaining portion of Peggy's portfolio? (a)21.72% (b)19.55% (c)13.64% (d6.52% Answer:(a) 28.ZB Enterprises pays a current dividend of $1.80 and dividends are expected to grow at a rate of6% annually in the foreseeable future.ZB Enterprises has a beta of 1.1.If the risk-free rate is 8.5 and the market risk premium is 5%,at what price would a share of ZB stock be expected to sell? (a)$20.50 (b)$23.85 (c)$32.40 (d)$32.90 Answer:(b) 29.Two industrial firms are considering a merger.Drysler has a beta of 0.95 and Bendz has a beta of 1.25.Drysler's stock sells for $25 per share and there are 12 million shares outstanding.Bendz has 3 million shares outstanding and its stock sells for $50 per share.What will be the merged firm's beta if the merger is carried out? (a)1.05 (b)1.10 (c)1.54 (d)2.20 Answer:(a) 13-8
13-8 26. If the Treasury bill rate is currently 4% and the expected return on the market portfolio for the same period is 13%, what is the equation of the CML if the standard deviation is 0.25? (a) E(r) = 0.04 + 0.36σ (b) E(r) = 0.04+ 0.09σ (c) E(r) = 0.09 + 0.36σ (d) E(r) = 0.09 + 0.16σ Answer: (a) 27. Peggy has just been informed that the expected return from her portfolio is 15.5%. If 45% of Peggy's securities have an expected return of 10.8% and 25% have an expected return of 16.5%, what is the expected return of the remaining portion of Peggy's portfolio? (a) 21.72% (b) 19.55% (c) 13.64% (d) 6.52% Answer: (a) 28. ZB Enterprises pays a current dividend of $1.80 and dividends are expected to grow at a rate of 6% annually in the foreseeable future. ZB Enterprises has a beta of 1.1. If the risk-free rate is 8.5 and the market risk premium is 5%, at what price would a share of ZB stock be expected to sell? (a) $20.50 (b) $23.85 (c) $32.40 (d) $32.90 Answer: (b) 29. Two industrial firms are considering a merger. Drysler has a beta of 0.95 and Bendz has a beta of 1.25. Drysler's stock sells for $25 per share and there are 12 million shares outstanding. Bendz has 3 million shares outstanding and its stock sells for $50 per share. What will be the merged firm's beta if the merger is carried out? (a) 1.05 (b) 1.10 (c) 1.54 (d) 2.20 Answer: (a)
30.Monet Industries currently does not pay a dividend but expects to pay a dividend of $1.70 next year Thereafter,the dividend is expected to grow at a rate of 5%per year.The risk-free rate is currently 6%and the expected return on the market portfolio is 12%.What is the price you would expect to pay for a share of Monet today if the beta for this stock is 1.05? (a)$12.50 (b)$13.13 (c)$23.29 (d$24.45 Answer:(c) 31.Joe Citizen is considering venturing into the sports utility vehicle field.As a result of such a venture, the beta would increase from 1.07 to 1.15 and the expected growth rate in earnings would increase from 10%to 12%.Determine whether this is a worthwhile venture if Joe also has the following information:the risk-free rate is 6%,the current dividend is $0.95,and the expected return on the market portfolio is 13%. (a)No,it is not worthwhile since there is no change in stock price (b)Yes,it is worthwhile since the stock price increases by $21.96 (c)Yes,it is worthwhile since the stock price increases by $29.94 (d)No,it is not worthwhile-stock price decreases by $19.12 Answer:(b) 32.Consider a share of Rooble Less.If it has a beta of 0.7,and we also know that the risk-free rate is 7%, and the expected return on the market portfolio is 15%,what is the required rate of return for a share of Rooble Less stock? (a)10.5% (b)11.9% (c)12.6% (d17.5% Answer:(c) 13-9
13-9 30. Monet Industries currently does not pay a dividend but expects to pay a dividend of $1.70 next year. Thereafter, the dividend is expected to grow at a rate of 5% per year. The risk-free rate is currently 6% and the expected return on the market portfolio is 12%. What is the price you would expect to pay for a share of Monet today if the beta for this stock is 1.05? (a) $12.50 (b) $13.13 (c) $23.29 (d) $24.45 Answer: (c) 31. Joe Citizen is considering venturing into the sports utility vehicle field. As a result of such a venture, the beta would increase from 1.07 to 1.15 and the expected growth rate in earnings would increase from 10% to 12%. Determine whether this is a worthwhile venture if Joe also has the following information: the risk-free rate is 6%, the current dividend is $0.95, and the expected return on the market portfolio is 13%. (a) No, it is not worthwhile since there is no change in stock price (b) Yes, it is worthwhile since the stock price increases by $21.96 (c) Yes, it is worthwhile since the stock price increases by $29.94 (d) No, it is not worthwhile - stock price decreases by $19.12 Answer: (b) 32. Consider a share of Rooble Less. If it has a beta of 0.7, and we also know that the risk-free rate is 7%, and the expected return on the market portfolio is 15%, what is the required rate of return for a share of Rooble Less stock? (a) 10.5% (b) 11.9% (c) 12.6% (d) 17.5% Answer: (c)
33.Determine the beta of a portfolio containing the following stocks Stock Market Value Beta REM $30,000 0.82 Rooble $20,000 0.65 Drysler $40,000 1.25 Fourx $60,000 1.32 Wotan $80,000 1.65 (a)0.95 (b)1.14 (c)1.30 (d5.69 Answer:(c) 34.Kanga Enterprises stock currently sells for $33 a share and its current dividend is $1.90.Kanga enterprise stock is considered to be twice as volatile than the market as a whole.The expected return on the market portfolio is 14%and the risk-free rate is 6%.If dividends are expected to grow at a constant rate,g%,into the foreseeable future,then calculate this growth rate. (a)15.36% (b)16.24% (c)22.00% (d26.71% Answer:(a) 35.LLJ has a beta of 1.02.If the risk-free rate is 8%and the required return on LLJ's stock is 16%,what is the required rate of return of the market? (a)12.00% (b)15.84% (c)16.16% (d16.48% Answer:(b) 13-10
13-10 33. Determine the beta of a portfolio containing the following stocks ________. Stock Market Value Beta REM $30,000 0.82 Rooble $20,000 0.65 Drysler $40,000 1.25 Fourx $60,000 1.32 Wotan $80,000 1.65 (a) 0.95 (b) 1.14 (c) 1.30 (d) 5.69 Answer: (c) 34. Kanga Enterprises stock currently sells for $33 a share and its current dividend is $1.90. Kanga enterprise stock is considered to be twice as volatile than the market as a whole. The expected return on the market portfolio is 14% and the risk-free rate is 6%. If dividends are expected to grow at a constant rate, g%, into the foreseeable future, then calculate this growth rate. (a) 15.36% (b) 16.24% (c) 22.00% (d) 26.71% Answer: (a) 35. LLJ has a beta of 1.02. If the risk-free rate is 8% and the required return on LLJ’s stock is 16%, what is the required rate of return of the market? (a) 12.00% (b) 15.84% (c) 16.16% (d) 16.48% Answer: (b)