Which term best applies to the situation where an investor cares less about losing $1 of his profits than he does about losing $1 of his original investment?
familiarity
get-evenitis
snakebite effect
house money effect
home bias
The common stock of Jensen Shipping has an expected return of 15.20 percent. The return on the market is 11 percent and the risk-free rate of return is 3.5. What is the beta of this stock?
1.23
1.17
1.56
2.56
0.75
Financial economists prefer to use market values rather than book values when measuring debt ratios because market values are:
used by Standard amp; Poor’s to measure credit worthiness.
required by financial regulators.
a better reflection of current information.
net of taxes.
more stable than book values.
Your portfolio has a beta of 1.15. The portfolio consists of 14 percent U.S. Treasury bills, 32 percent in stock A, and 54 percent in stock B. Stock A has a risk-level equivalent to that of the overall market. What is the beta of stock B?
1.21
1.54
1.40
0.54
1.08
You recently purchased a stock that is expected to earn 11 percent in a booming economy, 7 percent in a normal economy and lose 4 percent in a recessionary economy. There is a 12 percent probability of a boom, a 74 percent chance of a normal economy. What is your expected rate of return on this stock?
5.68
5.94
4.00
7.06
6.38
If a large number of diverse securities are added to a portfolio comprised of three stocks, then the:
return of the portfolio goes to zero.
weighted average of the unsystematic risk goes to zero.
weighted average expected return goes to zero.
return on the portfolio will equal the risk-free rate.
weighted average of the APT factor betas goes to zero.