Reference no: EM133056962

1) An investor put 60 percent of his money into a risky asset offering a 10 percent return with a standard deviation of return of 8 percent, and he put the balance of his risk-free asset offering 5 percent. What is the expected return and standard deviation of his portfolio?

Expected Return Standard Deviation

a. 6.0% 6.8%

b. 8.0% 8.0%

c. 8.0% 4.8%

d. 10.0% 6.6%

2) What is the required rate of return for a stock with a beta of 1.2, when the risk-free rate is 6 percent and the market is offering 12 percent?

a. 6.0%

b. 7.2%

c. 12.0%

d. 13.2%

3) The risk-free rate is 6 percent and the expected market return is 15 percent. An investor sees a stock with a beta of 1.2 selling for $25 that will pay a $1 dividend next year. If he thinks the stock will be selling for $30 at year end, he thinks it is:

a. overpriced, so buy it.

b. overpriced, so short it.

c. underpriced, so buy it.

d. underpriced, so short it.