Both assets B and C plot on the SML. Asset B has a beta of 1.3 and an expected return

Managerial Finance

Both assets B and C plot on the SML. Asset B has a beta of 1.3 and an expected return of 13.1%. Asset C has a beta of .50 and an expected return of 7.5%. The risk-free rate is 4% and the expected return on the market portfolio is 11%. If you wish to hold a portfolio consisting of assets B and C, and have a portfolio beta equal to 1.0, what proportion of the portfolio must be in asset C?

A. 0.375
B. 0.50
C. 0.625
D. 0.75

Given an expected market return of 12.0%, a beta of 0.75 for Benson Industries, and a risk-free rate of 4%, what is the expected return for Benson Industries?

A. 13%
B. 10%
C. 9%
D. 4%

The __________ is the intercept on the security market line.

A. prime rate
B. risk-free rate
C. market rate of return
D. beta

Assume the following information about the market and JumpMasters' stock. JumpMasters' beta = 1.50, the risk-free rate is 3.5%, the market risk premium is 10%. Using the SML, what is the expected return for JumpMasters' stock?

A. 7.5%
B. 13.5%
C. 18.5%
D. 27%

Correlation, a standardized measure of how stocks perform relative to one another in different states of the economy, has a range from:

A. 0.0 to +10.0.
B. 0.0 to +1.0.
C. -1.0 to +1.0.
D. There is no range; correlation is a calculated number that can take on any value.

The security market line:

A. is curvilinear and upward sloping.

B. is curvilinear and downward sloping.

C. may curve up or down depending upon market conditions.

D. is a straight line.

For purposes of maximum portfolio diversification, which of the following would provide the greatest diversification?

A. Security A with a correlation coefficient of -0.0
B. Security B with a correlation coefficient of 0.0
C. Security C with a correlation coefficient of -0.50
D. Security D with a correlation coefficient of 0.50

The primary benefit of diversification is:

A. an increase in expected return.
B. an equal reduction in risk and return.
C. a reduction in risk.
D. Diversification has no real benefit; it is a shell game promoted by investment advisors who are the only real winners.

__________ is the absence of knowledge of the outcome of an event before it happens.

A. Return
B. Diversification
C. Uncertainty
D. Certainty

For most stocks, the correlation coefficient with other stocks is:

A. positive.
B. negative.
C. zero.
D. The distribution of correlation coefficients between stocks is uniform from -1.0 to +1.0.

Use the following table:

States of the Economy	Probability of the State	3-Month T-Bill	Large-Company Stock	Small-Company Stock
Boom	0.3	4	10	30
Steady	0.5	4	5	20
Recession	0.2	4	0	10

What is the difference between the variances for large- and small-company stocks?

A. 40.25%
B. 36.75%
C. 27.30%
D. 14.90%

The correlation coefficient, a measurement of the comovement between two variables, has what range?

A. From 0.0 to +10.0
B. From 0.0 to +1.0
C. From -1.0 to +10.0
D. From =1.0 to -1.0