Chose the correct

6. The stock of Uncle Fred's has a beta a 1.23 and an expected return of 13.42%. The risk-free rate of return is 3.8%. What is the expected return on the market? ( Hint: Use SML)

1. 9.87% 2. 10.04% 3. 10.67% 4. 11.23% 5. 11.62%

7.

State	Probability	Return on A	Return on B
Boom	.6	0.15	0.08
Bust	.4	0.05	0.20

What is the expected return on security B?

1. 8% 2.10% 3.11% 4. 12.8% 5. 13.8%

8. Kurt's Adventures, Inc. stock is quite cyclical. In a boom economy, the stock is expected to return 30% in comparison to 12% in a normal economy and a negative 20% in a recessionary period. The probability of a recession is 15%. There is a 30% chance of a boom economy. The remainder of the time the economy will be at normal levels. What is the standard deviation of the returns on Kurt's Adventures, Inc. stock?

1. 10.05% 2. 12.60% 3.15.83% 4. 17.46% 5. 25.04%

9. The market has an expected rate of return of 9.8%. Long-term government bonds are expected to yield 4.5% and Treasury bills are expected to yield 3.4%. The inflation rate is 3.1%. What is the market risk premium? 1. 2.2% 2. 3.3% 3. 5.3% 4. 6.4% 5. 6.7%

10. Which one of the following is an example of a nondiversifiable risk? 1. A well-respected president of a firm suddenly resigns. 2. A well-respected governor of the Bank of Canada suddenly resigns. 3. A key employee of a firm suddenly resigns and accepts employment with a key competitor. 4. A well-managed firm reduces its work force and automates several jobs. 5. A poorly managed firm suddenly goes out of business due to lack of sales.