Question
A friend has some reliable information that a certain stock is going to rise from $60 to $65 per share over the next year. The
A friend has some reliable information that a certain stock is going to rise from $60 to $65 per share over the next year. The return on the S&P 500 is expected to be 10% and the 90-day T-bill rate is 2%. If the stock's beta is .9, should you purchase the stock? (Assume the CAPM is valid)
Yes because it's undervalued. | ||
No because it's overvalued. | ||
You would be indifferent about buying the stock. | ||
Cannot be determined |
Any portfolio is mean-variance efficient it has the lowest risk for a given level of return among the attainable set of portfolios.
True
False
As the correlation coefficient between two stocks increases, the benefits of diversification received by combining them into a portfolio also increase.
True
False
Suppose two stocks are perfectly positively correlated. If you create a two stock portfolio by purchasing both of them, the standard deviation of that portfolio will be the weighted average of the standard deviations of each asset.
True
False
Suppose a portfolio has a beta and standard deviation of zero. If the market is in equilibrium, the return for such a portfolio must be zero.
True
False
The CAPM assumes that the only risk relevant to an asset's expected return are nondiversifiable risk factors.
True
False
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