In 1815, The British Government issued a consol. If we assume the consol promised to pay $25 per year in perpetuity. What would the consol be worth if the discount rate is 5%?

		$100
		$500
		$1,000
		$2,000

Two stocks can be combined to form a riskless portfolio if the correlation of -1.0. Risk is not reduced at all if the two stocks have correlation of +1.0. In general, stocks have correlation less than 1.0, so the risk is lowered but not completely eliminated.

True

False

What is the beta for a market portfolio such as S&P 500 index portfolio?

Portfolio provides average return but much lower risk. The key is the negative correlations among individual stocks. As more stocks are added, each new stock has a smaller risk-reducing impact on the portfolio.

		True.
		False.

If a stocks expected rate of return is 12% and the required rate of return is 15%, the stock is believed to be ______

		undervalued.
		overvalued.
		fairly valued

Which of the following statements about Security Market Line (SML) equation r_i = r_RF + (r_M r_RF)b_i = r_RF + (RP_M)b_i is NOT true?

		ri is the required rate of return for stock i.
		rRF is the real risk-free rate.
		rM is the required rate of return on the market portfolio.
		RPM is the risk premium on the market. It is equal to rM - rRF.