Question 1: The expected return on the market is 13% and the risk-free rate is 5%. Your portfolio has a beta of 1.3. What is the expected return on your portfolio?
Question 2: What is the beta of the following portfolio?
40% Stock A Beta = 1.2
30% Stock B Beta = 1
30% Stock C Beta = 0.9
Question 3: The more __________ the covariance of two assets, the greater the benefits of diversification.
Question 4: The risk-free rate is 6% and the expected return on the market is 12%. Which of the following stocks is most undervalued?
Stock A Expected Return = 11% Beta = 1.5
Stock B Expected Return = 11% Beta = 0.5
Question 5: You have taken a job with an arbitrage firm. An analyst has presented the following information to you.
Stock A Expected Return is 12%
Stock B Expected Return is 15%.
As arbitrage trader what action would you take?
Question 6: Total Risk is comprised of ___________ + __________.
Question 7: ___________ can be largely diversified away.