4 points 1 Chapter 13 Practice Test Question 01 The stock of Blue Water Tours, Inc. is expected to return 19.50 percent in a boom economy, 14.50 percent in a normal economy, and lose 13.50 percent in a recessionary economy. What is the expected rate of return on this stock if there is a 9.00 percent chance the economy booms, and an 90.00 percent chance the economy will be normal? Print Multiple Choice References 13.50 percent 15.15 percent 14.67 percent 14.42 percent 4 2 points Chapter 13 Practice Test Question 02 A stock is expected to earn 19 percent in a boom economy and 9 percent in a normal economy. There is a 37 percent chance the economy will boom and a 63.0 percent chance the economy will be normal. What is the standard deviation of these returns? Print Multiple Choice References 6.64 Percent 5.86 Percent 5.98 Percent 4.83 Percent 4 3 points Chapter 13 Practice Test Question 03 A stock is expected to earn 27 percent in a boom economy, 15.50 percent in a normal economy, and lose 35 percent in a recessionary economy. There is a 22 percent chance the economy will boom and a 65 percent chance the economy will be normal. What is the expected risk premium for this stock if the risk-free rate is expected to be 4.50 percent? Print References Multiple Choice 5.57 percent 6.68 percent 6.97 percent 6.01 percent 4 Chapter 13 Practice Test Question 04 Lester has a portfolio comprised of the following stocks: Stock Number of 4 Price per points Shares Share A 830 $ 24 B 750 50 C 910 81 Print D 840 37 References What is the portfolio weight of Stock C? Multiple Choice 42.25 percent 48.45 percent 45.44 percent 43.06 percent 4 5 Chapter 13 Practice Test Question 05 A portfolio consists of 20 percent Stock A, 50 percent Stock B, and 30 percent Stock C. What is the portfolio expected return given the following: points State of Economy Probability of State of Economy Normal .75 Print Recession .25 References Multiple Choice 7.20 percent 5.81 percent 3.50 percent 7.73 percent Stock A Returns Stock B Returns Stock C Returns 12% -2 5% 11 18% -24 6 Chapter 13 Practice Test Question 09 Which one of the following is the best example of systematic risk? 3 points Multiple Choice Print References increase in the productivity of auto manufacturers decrease in the U.S. GDP increase in computer sales decrease in the production costs of cell phones 7 Chapter 13 Practice Test Question 10 Which one of the following is the best example of unsystematic risk? 3 points Multiple Choice Print References decrease in a firm's market share decrease in interest rates for all types of loans increase in corporate tax rates increase in consumer confidence 8 00 Chapter 13 Practice Test Question 11 Which type of risk can be eliminated through diversification? 3 points Multiple Choice Print References total risk systematic risk asset-specific risk market risk 3 9 Chapter 13 Practice Test Question 12 Which one of the following statements is correct? points Print References Multiple Choice Unanticipated events affecting a single industry are classified as diversifiable risks. Any increase in the number of stocks in a portfolio must decrease the portfolio standard deviation. Unsystematic risk represents the minimum level of risk in a diversified portfolio. As few as ten diverse stocks can eliminate the bulk of the systematic risk of a portfolio. 10 Chapter 13 Practice Test Question 13 Beta is a measure of which one of the following? 3 points Multiple Choice Print total return References total risk systematic risk unexpected return 3 11 points Chapter 13 Practice Test Question 14 According to the systematic risk principle, the expected return on an asset depends solely on which one of the following? Print Multiple Choice o References asset's total risk asset's unsystematic risk asset's systematic risk market risk 12 Chapter 13 Practice Test Question 15 A portfolio is comprised of the following stocks. What is the portfolio beta? Stock Market Value Beta 4 points of Shares A $22,000 2.19 B $ 21,500 1.14 C $ 10,200 1.24 Print References Multiple Choice 1.66 1.47 1.74 1.59 4 13 points Chapter 13 Practice Test Question 16 What is the expected rate of return on a stock that has a beta of 1.56 if the market risk premium is 8.8 percent and the risk-free rate is 4.1 percent? Print Multiple Choice References 16.90 percent 13.82 percent 15.97 percent 17.83 percent 14 Chapter 13 Practice Test Question 20 You own a $50,000 portfolio that is invested in a risk-free security and Stock A. The beta of Stock A is 2.20 and the portfolio beta is 1.40. What is the amount of the investment in Stock A? 4 points Print References Multiple Choice $29,178 $32,638 $34,378 $31,818 4 15 points Chapter 13 Practice Test Question 22 Stock A has a beta of 2.3 and an expected return of 13.3 percent. Stock B has a beta of 1.15 and an expected return of 15.20 percent. At what risk-free rate would these two stocks be correctly priced? Print Multiple Choice References 15.80 percent 14.92 percent 16.49 percent 17.10 percent 16 Chapter 13 Practice Test Question 24 The opportunity cost of a firm's investment in a capital project is referred to as the investment's: 3 points Print Multiple Choice References NPV. beta. cost of capital. risk-free rate. 17 Problem 13-1 Determining Portfolio Weights [LO1] What are the portfolio weights for a portfolio that has 128 shares of Stock A that sell for $38 per share and 108 shares of Stock B that sell for $28 per share? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.) 8 00 points Stock A Stock B Print References Portfolio weights 4 18 points Problem 13-2 Portfolio Expected Return [LO1] You own a portfolio that has $3,500 invested in Stock A and $4,500 invested in Stock B. If the expected returns on these stocks are 11 percent and 14 percent, respectively, what is the expected return on the portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Portfolio expected return % Print References 4 19 Problem 13-6 Calculating Expected Return [LO1] Consider the following information: State of Probability of Portfolio Return Economy State of Economy If State Occurs points Recession Normal Boom .23 .48 .29 - 19 .20 .28 Print References Calculate the expected return. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return % 4 20 points Problem 13-11 Calculating Portfolio Betas [LO4] You own a stock portfolio invested 30 percent in Stock Q, 25 percent in Stock R, 30 percent in Stock S, and 15 percent in Stock T. The betas for these four stocks are .91, 1.24, 1.08, and 1.26, respectively. What is the portfolio beta? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) Portfolio beta Print References 4 21 points Problem 13-13 Using CAPM [LO4] A stock has a beta of 1.06, the expected return on the market is 12 percent, and the risk- free rate is 3.5 percent. What must the expected return on this stock be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return % Print References 22 Problem 13-14 Using CAPM [LO4] A stock has an expected return of 13 percent, the risk-free rate is 7 percent, and the market risk premium is 8 percent. What must the beta of this stock be? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) 4 points Beta of stock Print References