Q1. Which of the following statements about portfolio management is most accurate?

A)   The security market line (SML) measures systematic and unsystematic risk versus expected return; the CML measures total risk.

B)   As an investor diversifies away the unsystematic portion of risk, the correlation between his portfolio return and that of the market approaches negative one.

C)   Combining the capital market line (CML) (risk-free rate and efficient frontier) with an investor's indifference curve map separates out the decision to invest from the decision of what to invest in.

Q2. The essence of the capital asset pricing model (CAPM) is embodied in which of the following equations?

A)   Both the security market line (SML) and the capital market line (CML) as they are both the same equation.

B)   The capital market line (CML).

C)   The security market line (SML).

Q3. The expected market premium is 8%, with the risk-free rate at 7%. What is the expected rate of return on a stock with a beta of 1.3?

A)   16.3%.

B)   17.4%.

C)   10.4%.

Q4. What is the required rate of return for a stock with a beta of 1.2, when the risk-free rate is 6% and the market is offering 12%?

A)   13.2%.

B)   7.2%.

C)   6.0%.

Q5. The beta of Stock A is 1.3. If the expected return of the market is 12%, and the risk-free rate of return is 6%, what is the expected return of Stock A?

A)   13.8%.

B)   14.2%.

C)   15.6%.

答案和详解如下：

Q1. Which of the following statements about portfolio management is most accurate?

A)   The security market line (SML) measures systematic and unsystematic risk versus expected return; the CML measures total risk.

B)   As an investor diversifies away the unsystematic portion of risk, the correlation between his portfolio return and that of the market approaches negative one.

C)   Combining the capital market line (CML) (risk-free rate and efficient frontier) with an investor's indifference curve map separates out the decision to invest from the decision of what to invest in.

Correct answer is C)         

Combining the CML (risk-free rate and efficient frontier) with an investor’s indifference curve map separates out the decision to invest from what to invest in and is called the separation theorem. The investment selection process is thus simplified from stock picking to efficient portfolio construction through diversification.

The other statements are false. As an investor diversifies away the unsystematic portion of risk, the correlation between his portfolio return and that of the market approaches positive one. (Remember that the market portfolio has no unsystematic risk). The SML measures systematic risk, or beta risk.

Q2. The essence of the capital asset pricing model (CAPM) is embodied in which of the following equations?

A)   Both the security market line (SML) and the capital market line (CML) as they are both the same equation.

B)   The capital market line (CML).

C)   The security market line (SML).

Correct answer is C)         

The SML equation represents the essence of the CAPM.

Q3. The expected market premium is 8%, with the risk-free rate at 7%. What is the expected rate of return on a stock with a beta of 1.3?

A)   16.3%.

B)   17.4%.

C)   10.4%.

Correct answer is B)

RR_Stock = R_f + (R_Market − R_f) × Beta_Stock, where RR = required return, R = return, and R_f = risk-free rate, and (R_Market − R_f) = market premium
Here, RR_Stock = 7 + (8 × 1.3) = 7 + 10.4 = 17.4%.

Q4. What is the required rate of return for a stock with a beta of 1.2, when the risk-free rate is 6% and the market is offering 12%?

A)   13.2%.

B)   7.2%.

C)   6.0%.

Correct answer is A)

RR_Stock = R_f + (R_Market - R_f) × Beta_Stock, where RR= required return, R = return, and R_f = risk-free rate. 

Here, RR_Stock = 6 + (12 - 6) × 1.2 = 6 + 7.2 = 13.2%.

Q5. The beta of Stock A is 1.3. If the expected return of the market is 12%, and the risk-free rate of return is 6%, what is the expected return of Stock A?

A)   13.8%.

B)   14.2%.

C)   15.6%.

Correct answer is A)

RR_Stock = R_f + (R_Market - R_f) × Beta_Stock, where RR= required return, R = return, and R_f = risk-free rate

Here, RR_Stock = 6 + (12 - 6) × 1.3  = 6 + 7.8 = 13.8%.

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