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The greater the beta

01 / 10 / 2021 Projects

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The greater the beta

Marks: 10NOTE: 1. ATTEMPT ALL QUESTIONS2. HIGHLIGHT THE CORRECT ANSWER OUT OF THE GIVEN FOURCHOICES FOR EACH QUESTION:1The greater the beta, the_________of the security involved.abcd2According to the capital-asset pricing model (CAPM), a security’s expected(required) return is equal to the risk-free rate plus a premiumabcd3Market RiskLiquidation ValueDiversifiable RiskBook ValueThe SML (security market line) equation shows the relationship between asecurity’s market risk and its ____________.abcd5Equal to the security’s beta.Based on the unsystematic risk of the security.Based on the total risk of the security.Based on the systematic risk of the security.In Efficient Markets, Price of Stocks is based on ____________.abcd4Greater the unavoidable riskGreater the avoidable riskLess the unavoidable riskLess the avoidable riskIntrinsic valueRequired rate of returnFace ValueBook ValueThe risk-free security has a beta equal to____________, while the marketportfolio’s beta is equal to ____________.abcdOne; more than one.One; less than one.Zero; One.Less than zero; more than zero.6Plaid Pants, Inc. common stock has a beta of 0.90, while Acme DynamiteCompany common stock has a beta of 1.80. The expected return on the market is10 percent, and the risk-free rate is 6 percent. According to the capital-assetpricing model (CAPM) and making use of the information above, the requiredreturn on Plaid Pants’ common stock should be ____________, and the requiredreturn on Acme’s common stock should be ____________ .abcd73.6 percent; 7.2 percent9.6 percent; 13.2 percent9.0 percent; 18.0 percent14.0 percent; 23.0 percentFollowing are the possible one year returns estimates for common stocks of acorporation.Possibility of occurrencePossible returns0.1-10%0.25%0.420%0.235%0.150%The expected return on this common stock would beabcd8An "aggressive" common stock would have a "beta"abcd910.45%16.43%20.75%25%Equal to zero.Greater than one.Equal to one.Less than one.—————— describes the relationship between an individual security’s returnsand returns on the market portfolio.abcdCharacteristic lineSecurity market lineCapital market lineBeta10 Because investors dislike uncertainty, they will require _________ rates of returnfrom risky investments.a HigherbcdLowerThe sameNone of the above



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