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Chapter 7. Risk and Return

Chapter 6 discusses the concepts of risk and return in investment portfolios, including true/false and multiple-choice questions related to portfolio beta, diversification, systematic risk, and the security market line (SML). It also includes exercises to calculate expected returns based on the Capital Asset Pricing Model (CAPM). The chapter emphasizes the importance of understanding risk measurement and the impact of diversification on investment outcomes.

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8 views4 pages

Chapter 7. Risk and Return

Chapter 6 discusses the concepts of risk and return in investment portfolios, including true/false and multiple-choice questions related to portfolio beta, diversification, systematic risk, and the security market line (SML). It also includes exercises to calculate expected returns based on the Capital Asset Pricing Model (CAPM). The chapter emphasizes the importance of understanding risk measurement and the impact of diversification on investment outcomes.

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nhan18032005555
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 6.

Risk and return

1. True/ False question

STT Nội dung


If a portfolio has a positive investment in every asset, the portfolio beta can be less than
1
that of every asset in the portfolio
2 The expected return on a risky asset depends on that asset's total risk
3 A risky asset can have a beta of zero

3. Multiple choice question

1. What is the principle of diversification?


A. Spreading an investment across a number of assets will eliminate systematic risk
B. Spreading an investment across a number of assets will eliminate unsystematic risk
C. Investing more money to a asset to eliminate systematic risk
D. Investing more money to a asset to eliminate unsystematic risk

2. What is the other name of systematic risk?


A. Diversifiable risk
B. Unique risk
C. Asset-specific risk
D. Market risk

3. What does a beta coefficient measure?


A. Systematic risk
B. Diversifiable risk
C. Unique risk
D. Asset-specific risk

4. Suppose all the following companies' stocks are trade in the same stock market. Which one
has the highes expected return?
A. The Gap
B. ExxonMobill
C. Google
D. They are equal

5. The security market line (SML) displays the relationship between:


A. Expected return and beta
B. Market risk premium and beta
C. Risk-free rate and beta
D. Expected return and Market risk premium

6. A stock has a beta of 1.05, the expected return on the market is 11 percent, and the risk-
free rate is 5.2 percent. What must the expected return on this stock be?
A. -0.89%
B. 11.29%
C. 12.20%
D. 22.21%

7. What is the value of an average stock's beta?


A. -0.5
B. 0.0
C. 0.5
D. 1.0

8. An investor has a two-stock portfolio with 25 million VND invested in stock X and 50
million VND invested in stock Y. X's beta is 1.50, and Y's beta is 0.60. What is the beta of
the investor's portfolio?
A. 0.9
B. 1.2
C. 1.95
D. 3.3

9. Portfolio A consists of two stocks: 50% is invested in Stock X and 50% is invested in stock
Y. Stock X has a standard deviation of 25% and a beta of 1.2. Stock Y has a standard
deviation of 35% and a beta of 0.80. The correlation between these stocks is 0.4. What is the
standard deviation of portfolio A?
A. More than 30%
B. 30%
C. Less than 30%
D. Lack of information to answer this question

10. What happens to the SML graph when risk aversion increases?
A. The SML goes up at the same angle
B. The SML moves to from left to right at the same angle
C. The slope of SML is steeper
D. Lack of information to answer this question

3. Exercise
1. Suppose you observe the following situation:

Assume these securities are correctly priced. Based on the CAPM, what is the expected return
on the market? What is the risk-free rate?

2. Suppose you observe the following situation:


Calculate the expected return on each stock.

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