Reference no: EM132721863

Question 1: In CAPM, a security that is fairly priced will have a return that lies _____ the security market line (the SML).
a) above
b) below
c) on
d) on or below
e) on or above

Question 2: In CAPM, a stock with an actual return for its unique level of risk that plots above the security market line (the SML) has:

a) has more risk from inflation than the average stock or the overall market.
b) generates a higher return than expected for its unique risk level.
c) less risk than the overall market.
d) provides a return that is appropriate for its unique risk level.
e) has more risk than the overall market.

Question 3: A stock with a beta of zero would be expected to have a rate of return equal to:

a) the risk-free rate.
b) zero.
c) the prime rate.
d) the market rate.
e) the average AAA bond.

Question 4: Amy and Andy have a portfolio with a beta of 1.26 and want to reduce the risk of the portfolio. Adding which of the following securities is likely to lower the risk of the portfolio?

a)a stock with a beta of 2.5
b) U.S. Treasury bills
c) A mix of small-company and large-company stocks
d) A stock with a beta of 2.25
e) A stock that has a standard deviation of 11 percent