90.2K

Verified Solution

Link Copied!

8, Assume that the risk-free rate is 5%, which of the following statements is CORRECT? a. If a stock's beta doubled, its required return would also double b. If a stock's beta doubled, its require d return would more than a stock's beta were 1.0, its required return would be 5%. a. If a stock's beta were less than 1.0, its required return would be less than 5%. e. If a stock has a negative beta, its required return would be less than 5%. 9. Which one of the following statements is CORRECT The risk premium on a risk-free security is generally considered to be 1%. The expected rate of return on any security, given multiple states of the economy, must be positive. a. b. c. There is an inverse relationship between the level of risk and the risk premium given d. If a risky security is correctly priced, its expected risk premium will be positive. e. fa risky security is priced correctly, it will have an expected return equal to the risk a risky security free rate. 10. Inflation, recession, and high interest rates are economic events that are best characterized as being which of the following: a. factors associated with market risk. b. unsystematic risk that can be diversified away c. risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers. irrelevant except to governmental authorities like the Federal Reserve. company-specific risks that can be diversified away. d. e. 11. Which of the following statements is CORRECT? Portfolio diversification reduces the variability of returns (as measured by its standard deviation) of each individual stock held in the portfolio. a. b. If an investor buys enough stocks, he or she can, through diversification, eliminate all of the diversifiable risk inherent in owning stocks. Therefore, if a portfolio contained all publicly traded stocks it would be essentially riskless. The required return on a firm's common stock is, in theory, determined solely by its market risk. If the market risk is known, and if that risk is expected to remain constant, then no other information is required to specify the firm's required return. c. d. A security's beta measures its non-diversifiable, or market, risk relative to that of an average stock A stock's beta is less relevant as a measure of risk to an investor with a well- diversified portfolio than to an investor who holds only that one stock. e

Answer & Explanation Solved by verified expert

See Answer