Question 1

Stock X has a beta of 0.5 and Stock Y has a beta of 1.5. Which of the following statements must be true, according to the CAPM?

Group of answer choices

If the expected rate of inflation increases but the market risk premium is unchanged, the required returns on the two stocks should increase by the same amount.

If you invest $50,000 in Stock X and $50,000 in Stock Y, your 2-stock portfolio would have a beta significantly lower than 1.0, provided the returns on the two stocks are not perfectly correlated.

Stock Y's realized return during the coming year will be higher than Stock X's return

Stock Y's return has a higher standard deviation than Stock X.

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Question 2

Which of the following items is not used in the capital asset pricing model?

Group of answer choices

A premium charged to account for the reinvestment rate risk in a long-term security instrument.

A risk-free rate used to account for the baseline amount of return acceptable to a marginal investor

A premium expected by a marginal investor for including an equity instrument into a diversified portfolio.

A return expected by diversified investor for holding a portfolio of equity instrument.

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Question 3

Which of the following statements is/are correct:

1. Beta accounts for the risk of the securities portfolio for a diversified investor
2. Market rate of return accounts for the risk of the securities portfolio for a marginal investor
3. Equity risk premium is the incremental return expected by a marginal investor from a specific equity instrument to be added into his/her portfolio of securities.
4. Risk-free rate used in CAPM can be a short-term or long-term rate depending on the tenor of the equity instrument

Group of answer choices

Statements 2 and 3 are correct

Statement 2 only

Statements 1, 2 and 3 are correct

All statements are correct

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Question 4

Norhan Industries just paid a dividend of P1.32. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stocks current market value?

Group of answer choices

P44.87

P43.75

P41.59

P42.65

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Question 5

Under what conditions would the yield-to-maturity and current yield of a bond be equal?

Group of answer choices

The bond is priced at par

The bond is priced at a discount

The bond is priced at a premium

Insufficient information

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Question 6

Huang Company's last dividend was P1.25. The dividend growth rate is expected to be constant at 15% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return is 11%, what is its current stock price?

Group of answer choices

P33.50

P32.49

P31.52

P30.57

Question 72.5 pts

Forms of investment returns include:

Group of answer choices

All these items

Interest

Dividends

Capital gains

Question 8

Your portfolio consists of Php100,000 invested in a stock that has a beta = 0.8, Php150,000 invested in a stock that has a beta = 1.2, and Php50,000 invested in a stock that has a beta = 1.8. The risk-free rate is 7 percent. Last year this portfolio had a required rate of return of 13 percent. This year nothing has changed except for the fact that the market risk premium has increased by 2 percent (two percentage points). What is the portfolios current required rate of return?

Group of answer choices

15.33%

16.25%

16.33%

11.45%