Multiple choice questions using beta, expected return and bond values.
1. A stock with a beta greater than one has returns that are _______________ volatile than the market and a stock with a beta of less than one exhibits returns which are ______________ volatile than those of the market portfolio.
a. more, more
b. more, less
c. less, more
d. less, less
2. You hold a portfolio with the following securities:
Percent
Security of Portfolio Beta Return
X Corporation 20% 1.35 14%
Y Corporation 35% 0.95 10%
Z Corporation 45% 0.75 8%
Compute the expected return and beta for the portfolio.
a. 10.67%, 1.02
b. 9.90%, 1.02
c. 34.40%, 0.94
d. 9.90%, 0.94
3. Which of the following statements is true?
a. investing in foreign stocks is one way to improve diversification of a
portfolio.
b. Foreign securities are generally correlated with the domestic market.
c. Including foreign stocks in a portfolio increases foreign exchange risk.
d. Both a and c are true.
4. Which of the following statements is true?
a. When investors' required rate of return equals the bond's coupon rate, then the market value of the bond may be selling at par value.
b. When investors' required rate of return exceeds the bond's coupon rate, then the market value of the bond will be greater than par value.
c. When investors' required rate of return is less than the bond's coupon rate, then market value of the bond will be greater than par value.
d. When investors' required rate of return is less than the bond's coupon rate, then the market value of the bond will be less than par vaiue.