1 - Which of the following statements is true about the beta of a portfolio?

a)If a portfolio's beta increases from 1.2 to 1.9, its actual rate of return will decrease by 1.9 times the market risk premium.

b) If any stock in the portfolio has a negative beta, the portfolio's required return will be negative.

c) If the beta of a stock is three, the stock's relevant risk is three times as volatile as the market portfolio.

d) If the beta of a portfolio doubles, its required return will also double.

e) Portfolios that contain high beta stocks do not have high market risk.

2 - The Security Market Line (SML) plots the risk of individual stocks and that stock's expected rate of return. If investors expect the inflation rate to increase, which of the following changes would occur?

a) The Security Market Line (SML) will become flatter

b) A decrease in the risk-free rate.

c)An increase in the expected returns of all stocks.

d) A decrease in the standard deviation of each stock.

e) A decrease in the beta of each stock.

3 - According to the Capital Asset Pricing Model (CAPM), which of the following risks is most relevant for a stock portfolio?

a) Firm-specific risk

b) Inflation risk

c) Bankruptcy risk

d) Diversifiable risk

e) Market risk

4 - According to the Capital Asset Pricing Model (CAPM), the "relevant risk" is the risk for which investors should be compensated and it is the portion of total risk that cannot be diversified away.

a) True

b) False