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    Investment & Portfolio Management - Assignment Four - Smart 3B

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    Ahmed Azazy
    The document is an investment and portfolio management assignment containing multiple choice questions about concepts like unsystematic risk, beta, CAPM, and the security market line. It includes questions about calculating expected returns based on risk-free rates, betas, and market risk premiums. There are also questions about using CAPM to evaluate investment strategies and whether stocks are overvalued or undervalued.

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    Investment & Portfolio Management - Assignment Four - Smart 3B

    Uploaded by

    Ahmed Azazy
    38 views6 pages
    The document is an investment and portfolio management assignment containing multiple choice questions about concepts like unsystematic risk, beta, CAPM, and the security market line. It includes questions about calculating expected returns based on risk-free rates, betas, and market risk premiums. There are also questions about using CAPM to evaluate investment strategies and whether stocks are overvalued or undervalued.

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    The document is an investment and portfolio management assignment containing multiple choice questions about concepts like unsystematic risk, beta, CAPM, and the security market line. It includes questions about calculating expected returns based on risk-free rates, betas, and market risk premiums. There are also questions about using CAPM to evaluate investment strategies and whether stocks are overvalued or undervalued.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    38 views6 pages

    Investment & Portfolio Management - Assignment Four - Smart 3B

    Uploaded by

    Ahmed Azazy
    The document is an investment and portfolio management assignment containing multiple choice questions about concepts like unsystematic risk, beta, CAPM, and the security market line. It includes questions about calculating expected returns based on risk-free rates, betas, and market risk premiums. There are also questions about using CAPM to evaluate investment strategies and whether stocks are overvalued or undervalued.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 6

    7/15/23, 2:50 PM Investment & Portfolio Management - Assignment Four - Smart 3B

    Investment & Portfolio Management -


    Assignment Four - Smart 3B
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    * Indicates required question

    Choose The Correct Answer

    Unsystematic risk ________. *

    can be eliminated through diversification

    cannot be estimated

    does not change

    The beta of stock D is -0.5. If the expected return of stock D is 8%, and the risk- *
    free rate of return is 5%, what is the expected return of the market?

    +3.0%.

    -1.0%.

    +3.5%.

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    7/15/23, 2:50 PM Investment & Portfolio Management - Assignment Four - Smart 3B

    What is the required rate of return for a stock with a beta of 1.2, when the risk-free *
    rate is 6% and the market risk premium is 12%?

    13.2%.

    15.4%.

    20.4%.

    For a security with a beta of 1.10 when the risk-free rate is 5%, and the expected *
    market risk premium is 5%, what is the expected rate of return on the security
    according to the CAPM?

    10.5%.

    15.5%.

    5.5%.

    If the standard deviation of the market's returns is 5.8%, the standard deviation of *
    a stock's returns is 8.2%, and the covariance of the market's returns with the
    stock's returns is 0.003, what is the beta of the stock?

    1.07.

    0.05.

    0.89.

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    7/15/23, 2:50 PM Investment & Portfolio Management - Assignment Four - Smart 3B

    An analyst wants to determine whether Dover Holdings is overvalued or *


    undervalued, and by how much (expressed as percentage return). The analyst
    gathers the following information on the stock:

    Market standard deviation = 0.70, Covariance of Dover with the market = 0.85,
    Dover's current stock price (P0) = $35.00, The expected price in one year (P1) is
    $39.00, Expected annual dividend = $1.50, 3-month Treasury bill yield = 4.50%,
    Historical average S&P 500 return = 12.0%. Dover Holdings stock is:

    undervalued by approximately 1.8%.

    overvalued by approximately 1.8%.

    undervalued by approximately 2.1%.

    The stock of Mia Shoes is currently trading at $15 per share, and the stock of *
    Video Systems is currently trading at $18 per share. An analyst expects the prices
    of both stocks to increase by $2 over the next year and neither company pays
    dividends.

    Mia Shoes has a beta of 0.9 and Video Systems has a beta of (-0.3). If the
    expected market return is 15% and the risk-free rate is 8%, which trading strategy
    does the CAPM indicate for these two stocks?

    Buy Mia Shoes & Buy Video Systems

    Buy Mia Shoes & Sell Video Systems

    Sell Mia Shoes & Buy Video Systems

    A higher Sharpe ratio indicates: *

    lower volatility of returns.

    a lower risk per unit of return.

    a higher excess return per unit of risk.

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    7/15/23, 2:50 PM Investment & Portfolio Management - Assignment Four - Smart 3B

    An analyst collected the following data for three possible investments. The *
    expected return on the market is 12% and the risk-free rate is 4%. According to
    the security market line (SML), which of the three securities is correctly priced?

    Lambda.

    Omega.

    Alpha.

    Adeline Bass is a member of an investment club. At the next meeting, she is to *


    recommend whether or not the club should purchase the stocks of CS Industries
    and MG Consolidated. The risk-free rate is at 6% and the expected return on the
    market is 15%. Prior to the meeting, Bass gathers the following information on the
    two stocks:

    purchase MG only.

    purchase both stocks.

    purchase CS only.

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    7/15/23, 2:50 PM Investment & Portfolio Management - Assignment Four - Smart 3B

    Forms

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    7/15/23, 2:50 PM Investment & Portfolio Management - Assignment Four - Smart 3B

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