Question 1

If the expected return is 6% and the standard deviation is 9% then what is the coefficient of variation? (express your answer to 1 decimal place)

Question 2

Assume investment X has a standard deviation of 20%, investment Y has a standard deviation of 20%, and X and Y have a correlation of 0.5. If 50% is invested in X and 50% is invested in Y then which is following is true?

The portfolio standard deviation will be less than 20%

The portfolio standard deviation will be greater than 20%

The portfolio standard deviation will be equal to 20%

Question 3

You have $20,000 invested in KTS which has a beta of 0.8 and $80,000 invested in CIS which has a beta of 1.4. What is the portfolio beta?

1.28

2.20

1.16

1.10

Question 4

Assume that the risk-free rate is 2% and the expected return on the market is 10%. What is

the required rate of return for a stock with a beta of 1.5?

18%

27%

14%

17%

Question 5

Assume that the rate of a 10-year Treasury is 3% and the expected return on the S&P 500

is 11%. If a stock has a beta of 0.9, what is its required rate of return?

12.6%

7.2%

14.0%

10.2%

Question 6

Which of the following is true?

Market risk decreases as the number of stocks in a portfolio increases

Diversifiable risk increases as the number of stocks in a portfolio increases

Firm specific risk increases as the number of stocks in a portfolio increases

Total risk decreases as the number of stocks in a portfolio increases

Question 7

Assume the risk-free rate is 3% and the market risk premium is 5%. What is the required rate of return for a company with a beta of 2?

11%

13%

10%