Which of the following would likely have the greatest amount of systematic risk? a. A portfolio of the ordinary shares of 100 randomly selected companies b. The market portfolio c. A portfolio half invested in the market portfolio and half invested in treasury bills d. A portfolio half invested in the market portfolio and half invested in stocks with betasgreater than 1.5 e. A portfolio made up entirely of treasury bills

Which of the following would likely have the greatest amount of systematic risk? a. A portfolio of the ordinary shares of 100 randomly selected companies b. The market portfolio c. A portfolio half invested in the market portfolio and half invested in treasury bills d. A portfolio half invested in the market portfolio and half invested in stocks with betasgreater than 1.5 e. A portfolio made up entirely of treasury bills

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 6P

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Market equity beta measures the covariability of a firms returns with all shares traded on the market (in excess of the risk-free interest rate). We refer to the degree of covariability as systematic risk. The market prices securities so that the expected returns should compensate the investor for the systematic risk of a particular stock. Stocks carrying a market equity beta of 1.20 should generate a higher return than stocks carrying a market equity beta of 0.90. Nonsystematic risk is any source of risk that does not affect the covariability of a firms returns with the market. Some writers refer to nonsystematic risk as firm-specific risk. Why is the characterization of nonsystematic risk as firm-specific risk a misnomer?
Which of the following would likely have the greatest amount of systematic risk? a. A portfolio of the ordinary shares of 100 randomly selected companies b. The market portfolio c. A portfolio half invested in the market portfolio and half invested in treasury bills d. A portfolio half invested in the market portfolio and half invested in stocks with betas greater than 1.5 e. A portfolio made up entirely of treasury bills
Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets. E(Rp) 12.00 % Standard Deviation of P 7.20 % T-Bill rate 3.60 % Proportion of Complete Portfolio in P 80 % Proportion of Complete Portfolio in T-Bills 20 % Composition of P: Stock A 40.00 % Stock B 25.00 % Stock C 35.00 % Total 100.00 % What are the proportions of stocks A, B, and C, respectively, in Bo's complete portfolio? A. 40%, 25%, 35% B. 8%, 5%, 7% C. 20%, 12.5%, 17.5% D. 32%, 20%, 28% E. 16%, 10%, 14%
You create a portfolio consisting of $23000 invested in a mutual fund with beta of 1.3, $25000 invested in Treasury Securities (assume risk-free), and $12000 invested in an index fund tracking the market. According to surveys, the expected market risk premium is 6.6%, Risk-free rate is 1.3%. What is the expected return of this portfolio according to CAPM?
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