QUESTION 1 Suppose that KAN's beta is 1.5. ifthe market risk premium is 8 percent and the riskefree interest rate is 4 percent, then according to CAPM the expected return for KAN stock is? O 8.0 percent 0 10.0 percent 0 13.5 percent 6) 16.0 percent QUESTION 2 A statisticai measure ofthe degree to which securities' returns move together is caiied the: O variance. 6) covariance. 0 standard deviation. 0 confidence intervai. Average excess return (96) 12 10 Portfolio 'A" 3 0 Portfolio '3" O 6 K 4 POMOHO '0' Market Portfolio 2 (Portfolio "D" 1 2 Beta Portfolio \"A": O is overpriced. O has a relatively lower expected return than predicted. 0 falls below the SML. has a positive alpha. Assume thatthe CAPM is a good description of stock returns. The market expected return is 8 percent and the risk-free rate is 3 percent. New news arrives that does not change any ofthese numbers, but it does change the expected returns of the following stocks: which of the following stocks represent buying opportunities? 'I . Taggart Transcontinental 2. Rearden Metal 3. Wyatt Oil 4. Nieison Motors 0 'i and 2 only 0 2 and 3 only 0 'i only 2 and 4 only Average excess raturn ('56) 12 1!) Portfolio "A\" 8 . Poroiio 'B' O 6 'K 4 Portfolio '0' Market Portfolio 2 rPortfolio "D" 1 2 Beta Portfolio \"B": O has a positive alpha. 0 is less risky than the market portfolio. 0 falls above the SML. G) is overpriced. \\{UEJI IUI' .3" Consider the price paths of the following stocks over a sixemonth period: None ofthese stocks pay dividends. Assume that you are an investor with the disposition effect and you bought each of these stocks in January. Suppose that it is currently the end ofJune. which stocks are you most inclined to sell? 1.Taggart Transcontinental 2. Rearden Metal 3. Wyatt Oil 4. Nielson Motors 0 i only 0 'l and 3 only 0 2 only 1, 2, and 3 only