1. Diversifying a portfolio across various sectors and industries will tend to:
reduce the beta of the portfolio to zero.
increase the security's risk premium.
increase the required risk premium.
reduce the firm-specific risk.
2. If the beta of XOM Co. is 0.64, risk-free rate is 3% and the market risk premium is 7%, calculate the expected rate of return for XOM stock:
8.18%
7.48%
5.56%
6.62%
3. Given the following data for a stock: beta = 1.2; risk-free rate = 3%; market rate of return = 13%; and expected rate of return on the stock = 14%. Then the stock is:
overpriced
under priced
cannot be determined
correctly priced
4. If a security plots above the security market line, then the security:
is correctly priced.
has a beta greater than 1.0.
is under-priced.
is overpriced.