The risk-free rate is 6% and the market risk premium is 5%. Your $1 million port
ID: 2665467 • Letter: T
Question
The risk-free rate is 6% and the market risk premium is 5%. Your $1 million portfolio consists of $700,000 invested in a stock that has a beta of 1.2 and $300,000 invested in a stock that has a beta of 0.8. Which of the following statements is CORRECT? ?Answera. If the risk-free rate remains unchanged but the market risk premium increases by 2%, your portfolio's required return will increase by more than 2%.
b. If the market risk premium remains unchanged but expected inflation
increases by 2%, your portfolio's required return will increase by more than 2%.
c. The portfolio's required return is less than 11%.
d. The required return on the market is 10%.
e. If the stock market is efficient, your portfolio's expected return should equal the expected return on the market, which is 11%.
? Taggart Inc.'s stock has a 50% chance of producing a 21% return, a 30% chance of producing a 10% return, and a 20% chance of producing a -28% return. What is the firm's expected rate of return? ?Answer
a. 9.72%
b. 7.82%
c. 7.90%
d. 8.37%
e. 9.88%
? Tom O'Brien has a 2-stock portfolio with a total value of $100,000. $75,000 is invested in Stock A with a beta of 0.75 and the remainder is invested in Stock B with a beta of 1.42. What is his portfolio's beta? ?Answer
a. 0.81
b. 0.92
c. 1.12
d. 0.86
e. 0.99