Question 1 1 pts The importance of being able to measure market risk is because: market risk is related to events and factors that are firm-specific the reward for bearing risk should depend only on the market risk of an investment the risk premium on an asset should be dependent on this as well as diversifiable risk elimination of diversifiable risk tends to be very difficult and expensive it is necessary in order to measure the total risk fie standard deviation) of an asset Question 2 1 pts Suppose bA=.8 and bg - 1.6. If you were to form a portfolio by investing equally in A, B and the risk-free security, what would be the value of beta for the portfolio? (Please read the question carefully.) 1.20 0.80 1.13 More information is needed concerning the correlation coefficient for the two securities 7.33 Question 3 1 pts The concept of diversification tells us that: Spreading an investment across many diverse assets cannot eliminate any risk Spreading an investment across many diverse assets will eliminate some of your risk Concentrating an investment in two or three large stocks will eliminate all of your risk Spreading an investment across many diverse assets will eliminate all of your risk Concentrating an investment in two or three large stocks will eliminate your market risk Question 4 1 pts Using the CAPM, what is the required return on a stock with a beta of 1.2 if the required market return is 10% and the risk-free rate is 4%? Not enough information 10.0% 11.2% 8.8% 9.0% Question 5 1 pts Using the following information, what is the expected return of the portfolio made up of P and Q? Amount Expected Correlation Stock Invested Return Variance Coefficient $8000 8.24 P 0.0529 Q $2000 0.17 0.0225 0.02575 0.2153 0.1069 0.226 0.1605 Question 6 1 pts Which of the following would be a source of market risk? 1. Higher research costs than expected for Proctor and Gamble 2. Lower interest rates than expected 3. Lower sales than expected for Apple Computer 1. and 3. only 1., 2., and 3 1. only 2. only 3. only