FIN 534 Week 5 Quiz 4
A finance quiz assessing knowledge of concepts covered in Week 5 of FIN 534.
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FIN 534 WEEK 5 QUIZ 4
Question 1
For a portfolio of 40 randomly selected stocks, which of the following is most likely to be true?
The riskiness of the portfolio is greater than the riskiness of each of the stocks if each was held in
isolation.
The riskiness of the portfolio is the same as the riskiness of each stock if it was held in isolation.
The beta of the portfolio is less than the average of the betas of the individual stocks.
The beta of the portfolio is equal to the average of the betas of the individual stocks.
The beta of the portfolio is larger than the average of the betas of the individual stocks.
Question 2
Which of the following statements is CORRECT?
The beta of a portfolio of stocks is always smaller than the betas of any of the individual stocks.
If you found a stock with a zero historical beta and held it as the only stock in your portfolio, you
would by definition have a riskless portfolio.
The beta coefficient of a stock is normally found by regressing past returns on a stock against
past market returns. One could also construct a scatter diagram of returns on the stock versus
those on the market, estimate the slope of the line of best fit, and use it as beta. However, this
historical beta may differ from the beta that exists in the future.
The beta of a portfolio of stocks is always larger than the betas of any of the individual stocks.
It is theoretically possible for a stock to have a beta of 1.0. If a stock did have a beta of 1.0, then,
at least in theory, its required rate of return would be equal to the risk-free (default-free) rate of
return, rRF.
Question 3
Stock A’s beta is 1.5 and Stock B’s beta is 0.5. Which of the following statements must be true
about these securities? (Assume market equilibrium.)
When held in isolation, Stock A has more risk than Stock B.
Stock B must be a more desirable addition to a portfolio than A.
Question 1
For a portfolio of 40 randomly selected stocks, which of the following is most likely to be true?
The riskiness of the portfolio is greater than the riskiness of each of the stocks if each was held in
isolation.
The riskiness of the portfolio is the same as the riskiness of each stock if it was held in isolation.
The beta of the portfolio is less than the average of the betas of the individual stocks.
The beta of the portfolio is equal to the average of the betas of the individual stocks.
The beta of the portfolio is larger than the average of the betas of the individual stocks.
Question 2
Which of the following statements is CORRECT?
The beta of a portfolio of stocks is always smaller than the betas of any of the individual stocks.
If you found a stock with a zero historical beta and held it as the only stock in your portfolio, you
would by definition have a riskless portfolio.
The beta coefficient of a stock is normally found by regressing past returns on a stock against
past market returns. One could also construct a scatter diagram of returns on the stock versus
those on the market, estimate the slope of the line of best fit, and use it as beta. However, this
historical beta may differ from the beta that exists in the future.
The beta of a portfolio of stocks is always larger than the betas of any of the individual stocks.
It is theoretically possible for a stock to have a beta of 1.0. If a stock did have a beta of 1.0, then,
at least in theory, its required rate of return would be equal to the risk-free (default-free) rate of
return, rRF.
Question 3
Stock A’s beta is 1.5 and Stock B’s beta is 0.5. Which of the following statements must be true
about these securities? (Assume market equilibrium.)
When held in isolation, Stock A has more risk than Stock B.
Stock B must be a more desirable addition to a portfolio than A.
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University
Strayer University
Subject
Finance