1. Suppose Sarah can borrow and lend at the risk free-rate of 3%. Which of the following four risky portfolios should she hold in combination with a position in the risk-free asset?
a. portfolio with a standard deviation of 15% and an expected return of 12%
b. portfolio with a standard deviation of 19% and an expected return of 15%
c. portfolio with a standard deviation of 25% and an expected return of 18%
d. portfolio with a standard deviation of 12% and an expected return of 9%
2. Suppose David can borrow and lend at the risk-free rate of 5%. Which of the following three risky portfolios should he hold in combination with a position in the risk-free asset?
a. portfolio with a standard deviation of 16% and an expected return of 12%
b. portfolio with a standard deviation of 20% and an expected return of 16%
c. portfolio with a standard deviation of 30% and an expected return of 20%
d. he should be indifferent in holding any of the three portfolios
3. The risk-free rate is 5% and the expected return on the market portfolio is 13%. A stock has a beta of 1.5, what is its expected return?
a. 17%
b. 12%
c. 19.5%
d. 24.5%
4. The risk-free rate is 5% and the expected return on the market portfolio is 13%. A stock has a beta of 1.0, what is its expected return?
a. 8%
b. 13%
c. 5%
d. none of the above
5. The risk-free rate is 5% and the expected return on the market portfolio is 13%. A stock has a beta of 0, what is its expected return?
a. 0%
b. 5%
c. 13%
d. none of the above
6. According to the CAPM (capital asset pricing model), the security market line is a straight line. The intercept of this line should be equal to
a. zero
b. the expected risk premium on the market portfolio
c. the risk-free rate
d. the expected return on the market portfolio
7. According to the CAPM (capital asset pricing model), the security market line is a straight line. The slope of this line should be equal to
a. zero
b. the expected risk premium on the market portfolio
c. the risk-free rate
d. the expected return on the market portfolio
8. According to the CAPM (capital asset pricing model), what is the single factor that explains differences in returns across securities?
a. the risk-free rate
b. the expected risk premium on the market portfolio
c. the beta of a security
d. the expected return on the market portfolio
e. the volatility of a security
9. If the market portfolio has an expected return of 0.12 and a standard deviation of 0.40, and the risk-free rate is 0.04, what is the slope of the security market line?
a. 0.08
b. 0.20
c. 0.04
d. 0.12
10. A particular asset has a beta of 1.2 and an expected return of 10%. The expected return on the market portfolio is 13% and the risk-free is 5%. Which of the following statement is correct?
a. This asset lies on the security market line.
b. This asset lies above the security market line.
c. This asset lies below the security market line.
d. Cannot tell from the given information.