Chapter 7: Risk, return and the capital asset pricing model
Quiz
The expected return on Share X is 15.75% while the risk-free rate of return is 7%. If the expected return on the market is 12%, then what is the beta of Share X?
1.90
1.75
1.60
1.45
You would like to form a two share portfolio with a beta equal to 1.6. You have narrowed down your choice of shares to Share A with a beta of 2 and Share B with a beta of 1.5. What proportion of your portfolio do you invest in A?
85%
80%
20%
15%
Use the following information concerning the returns for Widgets, Ltd to answer the next questions.
Outcome
Probability
Return
Boom
0.2
0.2
Normal
0.3
0.18
Recession
0.2
0.09
Depression
0.1
0.01
What is the expected return for Widgets?
0.116
0.113
0.110
0.107
The risk that covers events like unexpected changes in the economy refers to:
systematic risk.
unsystematic risk.
total risk.
all of the above.
The beta of a US Treasury bill is equal to:
one.
zero.
negative one.
none of the above.
You have €40,000 to invest and you decide to invest €30,000 in shares with a beta of 2 and €10,000 in shares with a beta of 1.5. What is the beta of your new two share portfolio?
2.000
1.875
1.750
1.625
You have €20,000 to invest and you decide to invest €30,000 in shares with an expected return of 16% and short €10,000 in shares with an expected return of 12%. What is the expected return of your new two share portfolio?
18%
16%
14%
12%
The expected return on Share Z is 17.50% with a beta of 1.90. If the risk-free rate is 8%, then what is the expected return on the market?
13.00%
12.75%
12.50%
12.00%
You would like to form a two share portfolio with a beta equal to 1.6. You have narrowed down your choice of shares to Share A with a beta of 2 and Share B with a beta of 1.5. What amount of your portfolio do you invest in Share A if you have €30,000 to invest?
€9,000
€7,500
€6,000
€4,500
A portfolio that is so diversified that it contains at least some of every available risky asset in the economy, in the same proportion of that asset's value to the market value of all assets, is called: