1. A stock has a beta of 1.4, an expected return of 17.2 percent, and lies on the security market line. A risk-free asset is yielding 3.2 percent. You want to create a portfolio that is comprised of the stock and the risk free and will have a portfolio beta of 0.6. What is the expected return on this portfolio?
11.87 percent
12.33 percent
10.41 percent
9.20 percent
2. Diversifying a portfolio across various sectors and industries will tend to:
increase the security's risk premium.
reduce the beta of the portfolio to zero.
increase the required risk premium.
reduce the firm-specific risk.
3. The cost of preferred stock:
is constant over time.
decreases when a firm's tax rate increases.
is unaffected by changes in the price of the stock.
is equal to the preferred stock's dividend yield.