Florence nightingale hygiene theory

Chapter 7—Risk, Return, and the Capital Asset Pricing ModelMULTIPLE CHOICE1.Suppose Sarah can borrow and lend at the risk free-rate of 3%. Which of the following four risky portfolios should she hold in combination with a position in therisk-free asset?a.portfolio with a standard deviation of 15% and an expected return of 12%b.portfolio with a standard deviation of 19% and an expected return of 15%c.portfolio with a standard deviation of 25% and an expected return of 18%d.portfolio with a standard deviation of 12% and an expected return of 9%ANS:BTo determine which portfolio is the best, draw a line from the risk-free rate to each dot in the figure and choose the line with the highest slope.DIF:HREF:7.3 The Security Market Line and the CAPM2.Suppose David can borrow and lend at the risk-free rate of 5%. Which of the following three risky portfolios should he hold in combination with a position in the risk-free asset?a.portfolio with a standard deviation of 16% and an expected return of 12%b.portfolio with a standard deviation of 20% and an expected return of 16%c.portfolio with a standard deviation of 30% and an expected return of 20%d.he should be indifferent in holding any of the three portfoliosANS:B
To determine which portfolio is the best, draw a line from the risk-free rate to each dot in the figure and choose the line with the highest slope.DIF:HREF:7.3 The Security Market Line and the CAPM3.The risk-free rate is 5% and the expected return on the market portfolio is 13%. A stock has a beta of 1.5, what is its expected return?a.17%b.12%c.19.5%d.24.5%ANS:AE(R) = 5% + 1.5(13%-5%) = 17%DIF:EREF:7.3 The Security Market Line and the CAPM4.The risk-free rate is 5% and the expected return on the market portfolio is 13%. A stock has a beta of 1.0, what is its expected return?a.8%b.13%c.5%d.none of the aboveANS:BE(R) = 5% + 1.0(13%-5%) = 13%DIF:EREF:7.3 The Security Market Line and the CAPM5.The risk-free rate is 5% and the expected return on the market portfolio is 13%. A stock has a beta of 0, what is its expected return?a.0%b.5%c.13%d.none of the aboveANS:BE(R) = 5% + 0(13%-5%) = 5%