114. You hold four stocks in your portfolio: A, B, C, and D. The portfolio beta is 1.20. Stock C comprises 40% of the dollar value of your holdings and has a beta of 1.60. If you sell all of your holdings in stock C, and replace it with an equal investment in stock E (which has a beta of 1.25), what will be your new portfolio beta?

A) 1.00

B) 1.06

C) 1.12

D) 1.25

E) 1.32

Ans:B Level:Basic Subject:PortfolioBeta Type:Problems

115. What is the beta for the following portfolio?

Stock / A / B / C / D / E
Investment ($) / 15,000 / 10,000 / 25,000 / 12,500 / 17,500
Beta / 0.6 / 0.9 / 1.6 / 1.1 / 0.0

A) 0.80

B) 0.88

C) 0.90

D) 0.93

E) 0.98

Ans:C Level:Basic Subject:PortfolioBeta Type:Problems

116. What is the beta of a portfolio made up of two risky assets and a risk-free asset? You invest 40% in asset A with a beta of 1.25 and 40% in asset B with a beta of 1.15.

A) 0.84

B) 0.96

C) 1.03

D) 1.12

E) 1.20

Ans:B Level:Basic Subject:PortfolioBeta Type:Problems

117. You form a portfolio by investing equally in A (beta=0.8), B (beta=1.2), the risk-free asset, and the market portfolio. What is your portfolio beta?

A) 0.67

B) 0.75

C) 0.95

D) 1.12

E) 1.15

Ans:B Level:Basic Subject:PortfolioBeta Type:Problems

118. Given the following information: The risk-free rate is 7%, the beta of stock A is 1.2, the beta of stock B is 0.8, the expected return on stock A is 13.5%, and the expected return on stock B is 11.0%. Further, we know that stock A is fairly priced and that the betas of stocks A and B are correct. Which of the following regarding stock B must be true?

A) Stock B is also fairly priced.

B) The expected return on stock B is too high.

C) The expected return on stock A is too high.

D) The price of stock B is too high.

E) The price of stock A is too high.

Ans:D Level:Basic Subject:RewardToRiskRatio Type:Problems

119. Asset A has a reward to risk ratio of .075 and a beta of 1.5. The risk-free rate is 5%. What is the expected return on A?

A) 11.25%

B) 12.25%

C) 13.50%

D) 14.25%

E) 16.25%

Ans:E Level:Basic Subject:RewardToRiskRatio Type:Problems

120. Asset A, which has an expected return of 12% and a beta of 0.8, plots on the security market line. Which of the following is false about Asset B, another risky asset with a beta of 1.4?

A) If the market is in equilibrium, Asset B also plots on the SML.

B) If Asset B plots on the SML, then Asset B and Asset A have the same reward to risk ratio.

C) Asset B has more systematic risk than both Asset A and the market portfolio.

D) If Asset B plots on the SML with an expected return = 18%, then the risk-free rate must be 4%.

E) If Asset B plots on the SML with an expected return = 18%, the expected return on the market must be 15%.

Ans:E Level:Basic Subject:SecurityMarketLine Type:Problems

121. What is the expected return on asset A if it has a beta of 0.3, the expected market return is 14%, and the risk-free rate is 5%?

A) 6.0%

B) 9.2%

C) 7.2%

D) 7.7%

E) 4.5%

Ans:D Level:Basic Subject:CAPM Type:Problems

122. What is the expected market return if the expected return on asset A is 16% and the risk-free rate is 7%? Asset A has a beta of 1.2.

A) 9.5%

B) 14.5%

C) 16.5%

D) 17.5%

E) 20.5%

Ans:B Level:Basic Subject:CAPM Type:Problems

123. Asset A has an expected return of 15%. The expected market return is 14% and the risk-free rate is 4%. What is asset A's beta?

A) 0.80

B) 1.10

C) 1.40

D) 1.80

E) 2.00

Ans:B Level:Basic Subject:CAPM Type:Problems

124. Asset A has an expected return of 22% and a beta of 1.8. The expected market return is 14%. What is the risk-free rate?

A) 0.6%

B) 1.2%

C) 3.0%

D) 4.0%

E) 6.0%

Ans:D Level:Basic Subject:CAPM Type:Problems

125. Asset A has an expected return of 12% and a beta of 1.05. The risk-free rate is 4%. What is the market risk premium?

A) 7.6%

B) 8.2%

C) 9.6%

D) 10.2%

E) 11.6%

Ans:A Level:Basic Subject:CAPM Type:Problems