Q11. Which of the following statements about a stock's beta is TRUE? A beta greater than one is:

A)   riskier than the market, while a beta less than one is less risky than the market.

B)   risky, while a beta less than one is risk-free.

C)   undervalued, while a beta less than one is overvalued.

Q12. Given a beta of 1.10 and a risk-free rate of 5%, what is the expected rate of return assuming a 10% market return?

A)   10.5%.

B)   15.5%.

C)   5.5%.

Q13. The expected rate of return is twice the 12% expected rate of return from the market. What is the beta if the risk-free rate is 6%?

A)   2.

B)   4.

C)   3.

Q14. Given the following data, what is the correlation coefficient between the two stocks and the Beta of stock A?

• standard deviation of returns of Stock A is 10.04%

• standard deviation of returns of Stock B is 2.05%

• standard deviation of the market is 3.01%

• covariance between the two stocks is 0.00109

• covariance between the market and stock A is 0.002

          Correlation Coefficient              Beta (stock A)

A)    0.5296                                            2.20

B)    0.6556                                            2.20

C)    0.5296                                            0.06

答案和详解如下：

Q11. Which of the following statements about a stock's beta is TRUE? A beta greater than one is:

A)   riskier than the market, while a beta less than one is less risky than the market.

B)   risky, while a beta less than one is risk-free.

C)   undervalued, while a beta less than one is overvalued.

Correct answer is A)

Beta is a measure of the volatility of a stock.  The overall market's beta is one. A stock with higher systematic risk than the market will have a beta greater than one, while a stock that has a lower systematic risk will have a beta less than one.

Q12. Given a beta of 1.10 and a risk-free rate of 5%, what is the expected rate of return assuming a 10% market return?

A)   10.5%.

B)   15.5%.

C)   5.5%.

Correct answer is A)

k = 5 + 1.10 (10 - 5) = 10.5

Q13. The expected rate of return is twice the 12% expected rate of return from the market. What is the beta if the risk-free rate is 6%?

A)   2.

B)   4.

C)   3.

Correct answer is C)

24 = 6 + β (12 − 6)

18 = 6β

β = 3

Q14. Given the following data, what is the correlation coefficient between the two stocks and the Beta of stock A?

• standard deviation of returns of Stock A is 10.04%

• standard deviation of returns of Stock B is 2.05%

• standard deviation of the market is 3.01%

• covariance between the two stocks is 0.00109

• covariance between the market and stock A is 0.002

          Correlation Coefficient              Beta (stock A)

A)    0.5296                                            2.20

B)    0.6556                                            2.20

C)    0.5296                                            0.06

Correct answer is A)

correlation coefficient = 0.00109 / (0.0205)(0.1004) = 0.5296.

beta of stock A = covariance between stock and the market / variance of the market

Beta = 0.002 / 0.0301² = 2.2

thanks

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