1. You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P. constructed with two risky securities, X and Y. The optimal weights of X and Yin Pare 60% and 40% respectively. X has an expected rate of return of 14%, and Y has an expected rate of return of 10%. To form a complete portfolio with an expected rate of return of 8%, you should invest approximately in the risky portfolio. This will mean you will also invest approximately of your complete portfolio in security X and Y respectively.* and O a) 0%; 60%; 40% O b) 25%; 45%; 30% c) 40%; 24%; 16% d) 50%; 30%; 20% None of the above 2. The risk-free rate is 5 percent. Stock A has a beta 1.2 and Stock Bhas a beta 1.4. Stock A has a required return of 11 percent. What is Stock B's required return?* a) 12.0% b) 13.4% c) 14.4% d) 15.4% None of the above 3. An investor is forming a portfolio by investing $50,000 in stock A that has a beta of 1.50, and $25,000 in stock B that has a beta of 0.90. The return on the market is equal to 6 percent and Treasury bonds have a yield of 4 percent. What is the required rate of return on the investor's portfolio?* a) 6.6% Ob) 6.8% O c) 5.8% d) 7.0% None of the above 4. Stock A has an expected return of 12 percent, a beta of 1.2, and a standard deviation of 20 percent. Stock B has an expected return of 10 percent, a beta of 1.2, and a standard deviation of 15 percent. Portfolio P has $900,000 invested in Stock A and $300,000 invested in Stock B. The correlation between Stock A's returns and Stock B's returns is zero (that is r = 0). Which of the following statements is most correct? a) Portfolio P's expected return is 11.5 percent. b) Portfolio P's standard deviation is 18.75 percent. c) Portfolio P's beta is less than 1.2. d) Statements a and b are correct. None of the above 5. Given the following probability distribution, what are the expected return and the standard deviation of returns for Security J?* State Probability Return 1 0.2 10% 2 0.6 15 3 0.2 20 a) 15%; 6.50% b) 12%; 5.18% c) 15%; 3.16% d) 15%; 10.00% None of the above 6. ABC Corp has a beta of 1.5 and is currently in equilibrium. The required rate of return on the stock is 12% versus a required return on an average stock of 10%. Now the required return on an average stock increases by 30% (not percentage points). Neither betas nor the risk-free rate change. What would ABC's new required return be? a) 14.89% b) 15.68% c) 16.50% d) 17.33% None of the above