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50. You want to develop a portfolio containing U.S. Treasury bills and two stocks that is
equally as risky as the market. The securities will be equally weighted. If the beta of the first
stock is 1.23, what does the beta of the second stock have to be?
B
B
51. What should be the beta of a replacement stock if an investor wishes to achieve a
portfolio beta of 1.2 by replacing stock C in the following equally weighted portfolio: stock A = 0.9
beta; stock B = 1.1 beta; stock C = 1.35 beta?
C
C
52. What is the standard deviation of the market portfolio if the standard deviation of a fully
diversified portfolio with a beta of 1.25 equals 20%?
m
53. What is the beta of a U.S. Treasury bill?
54. One of the easiest methods of diversifying away firm-specific risks is to:
55. A considerable scattering in the plot of points representing the historic returns of a stock
versus the returns on the market reflects the:
56. A project has an assigned beta of 1.24, the risk-free rate is 3.8%, and the market rate of
return is 9.2%. What is the project's expected rate of return?
57. A project has an assigned beta of 0.97, the risk-free rate is 4.1%, and the market risk
premium is 8.1%. What is the project's expected rate of return?
58. Which one of the following statements is correct when Treasury bills yield 7.5% and the
market risk premium is 9.5%?
59. Assuming positive returns on Treasury bills, what can you assume about an investor
whose diversified portfolio of stocks yielded 25% when the market portfolio yielded 15%?
60. Assume the market rate of return is 12.5% and the risk-free rate is 3.1%. What will be the
change in a stock's rate of return if its beta increases from 1.12 to 1.14?
61. What is the expected yield on the market portfolio at a time when Treasury bills yield 6%
and a stock with a beta of 1.4 is expected to yield 18%?
62. When Treasury bills yield 7% and the expected return on the market is 16%, then the risk
premium on an asset is equal to:
63. Calculate the risk premium on stock C given the following information: risk-free rate =
5%, market return = 13%, stock C beta = 1.3.
64. If Treasury bills yield 6% and the market risk premium is 9%, then a stock with a beta of
1.5 would be expected to yield:
65. An investor was expecting a return of 18% on his portfolio with a beta of 1.25 before the
market risk premium increased from 8 to 10%. Based on this change, what return should he now
expect on the portfolio?
66. An investor was expecting a return of 14.7% on her portfolio with a beta of 1.13 before the
market risk premium decreased from 8 to 7%. Based on this change, what return should she now
expect on the portfolio?
67. What rate of return should an investor expect for a stock that has a beta of 0.8 when the
market is expected to yield 14% and Treasury bills offer 6%?
68. Based on your analysis, you believe that Alpha stock which has a beta of 1.32 is going to
yield 14.05% this coming year. The market is expected to yield 11.4% and T-bills are yielding
3.8%. According to CAPM, which one of these statements is correct given this information?
69. Why do stock market investors seem to ignore unique risks when calculating expected
rates of return?
70. If a two-stock portfolio is equally invested in stocks with betas of 1.4 and 0.7, then the
portfolio beta is:
71. A portfolio consists of an index mutual fund which represents the overall market and
Treasury bills. The fund has a portfolio weight of 60%. The risk-free rate is 3.2% and the market
risk premium is 7.6%. What is your best estimate of the portfolio expected rate of return?
72. What is the beta of a security with an expected return of 12% if Treasury bills yield 6%
and the market risk premium is 8%?
73. The slope of the security market line equals:
74. A stock has a beta of 1.4 and an expected return of 13.53%. What is the risk-free rate if
the market rate of return is 10.6%?
75. What return should be expected from investing in the market portfolio that is expected to
yield 18% if the investment includes all of the investor's funds plus 100% of additional funds
borrowed at the risk-free rate of 6%?
76. Which one of the following statements is more likely to be correct concerning the
comment, "Stock A has a higher expected return than Stock B"?
