1.With respect to the probability distribution of returns:

a. A risky stock has a higher probability of producing a return that is substantially closer to the mean of the distribution and a less risky stock has a higher probability of producing a return that is substantially away from the mean of the distribution.

b. High risk implies variability in return such that returns in successive years are likely to be insignificantly different from one another.

c. A less risky stock is likely to produce a return that is close to the mean of the distribution while a riskier stock has a higher probability of producing a return that is substantially away from the mean of the distribution.

d.Low risk implies variability in return such that returns in successive years are likely to be considerably different from one another.

2.According to the Capital Asset Pricing Model, a stock's risk premium is the:

a. price premium on low risk stocks that investors buy for safety.

b. risk premium on an average stock factored by a measure of the stock's market risk.

c. risk premium on an average stock factored by a measure of the stock's total risk.

d. extra money paid for high risk stocks because of their high average returns.

3.If you invest 30% of your funds in AT&T stock with an expected rate of return of 10% and the remainder in GM stock with an expected rate of return of 15%, the expected return on your portfolio is

a. 12.5%.

b. 13.0%.

c. 13.5%.

d. 14.5%.

e. None of the above

4.Sally's broker told her that the expected return from her portfolio was 14.2%. If 40% of her securities have an expected return of 10.3 percent and 20% have an expected return of 12.8 percent, what is the expected return of the remaining portion of her portfolio?

a. 20.9%

b. 18.8%

c. 12.5%

d. Cannot be determined

5.Charlie Dobbs is considering investing in Astrotech.His research has revealed the following:

The market is returning 11%.

Three-month treasury bills are yielding 5%.

Astrotech's beta is 1.2.

Astrotech recently paid a dividend of $1.50.

Analysts expect Astrotech to grow at 4% indefinitely.

How much should Charlie be willing to pay for a share of Astrotech?

a. $19.02

b. $12.00

c. $10.26

d. $18.29