1. A stock with a beta of zero would be expected to have a rate of return equal to A.the risk-free rate. B.the market rate C.the prime rate. D.the average AAA bond. E. None of the above 2. Both the APT and the CAPM imply a positive relationship between expected return and risk. The APT views.isk A.very similarly to the CAPM via the beta of the security. B.in terms of individual intersecurity correlation versus the beta of the . C.via the industry wide or marketwide factors creating correlation between securities D.the standardized deviation of the covariance. E.None of the above. 3. Shareholders discount many corporate announcements because of their prior expectations. If an announcement causes the price to change it will mostly be driven by NA.the expected part of the announcement. B.market inefficiency. C.the unexpected part of the announcement. D.the systematic risk. E. None of the above. 4. 52 Stock A has an expected return of 20%, and stock B has an expected return of 4%. However, the risk of stock A as measured by its variance is 3 times that of stock B. If the two stocks are combined equally in a portfolio, what would be the portfolio's expected return? A.4% B.12% C.20% D.Greater than 20% E.Need more information to answer 55 5. Diversification can effectively reduce risk. Once a portfolio is diversified the type of risk remaining is A.individual security risk B.riskless security risk Crisk related to the market portfolio. D.total standard deviations. E.None of the above 553 6. .-0.0089y then what is If the covariance of stock 1 with stock 2 is-O. the covariance of stock 2 with stock 1? A.+0.0085 B.-0.0085 C greater than +0.0085 D.less than -0.0085 Activa Go to se E.Need additional information 7. The opportunity set of portfolios is 55 A.all possible return combinations of those securities. B.all possible risk combinations of those securities. C.all possible risk-return combinations of those securities. D.the best or highest risk-return combination E.the lowest risk-return combination 55 8. According to the CAPM A.the expected return on a security is negatively and non-lineatly related to the security's beta. B.the expected return on a security is negatively and linearly related to the security's beta. C.the expected return on a security is positively and linearly related to the security's variance D.the expected return on a security is positively and non-linearly related to the security's beta. E.the expected return on a security is positively and linearly related to the security's beta. Activat Go to Set