Rates of return and risk free return

Question

USE THE GIVEN INFORMATION FOR THE NEXT PROBLEM(S):

Question 1: Refer to information above. Calculate the beta for RA Computer by using the historic returns presented above.
a) 0.7715
b) 1.2195
c) 1.3893
d) 1.1023
e) - 0.7715

Question 2: Refer to information above. Calculate the correlation coefficient between RA Computer and the Market Index.

a) -0.32
b) 0.78
c) 0.66
d) 0.58
e) 0.32

Question 3: Refer to information above. Calculate the intercept of the characteristic line for RA Computer.

a) -9.41
b) 11.63
c) 4.92
d) -7.98
e) -4.92

Question 4: Refer to information above. If you expected return on the Market Index to be 12%, what would you expect the return on RA Computer to be?

a) 7.26%
b) 6.75%
c) 8.00%
d) 9.37%
e) -3.29%

USE THE GIVEN INFORMATION FOR THE NEXT PROBLEM(S):

You expect the risk-free rate (RFR) to be 3% and the market return to be 8%. You as well have the given information about three stocks.

Question 5: Refer to information above. What are the expected (required) rates of return for the three stocks (in the order X, Y, Z)?

a) 16.50%, 5.50%, 22.00%
b) 9.25%, 10.5%, 7.5%
c) 21.25%, 8.33%, 11.43%
d) 6.20%, 2.20%, 8.20%
e) 15.00%, 3.50%, 7.30%

Question 6: Refer to information above. What are the estimated rates of return for the three stocks (in the order X, Y, Z)?

a) 21.25%, 8.33%, 11.43%
b) 6.20%, 2.20%, 8.20%
c) 16.50%, 5.50%, 22.00%
d) 9.25%, 10.5%, 7.5%
e) 15.00%, 3.50%, 7.30%

Question 7: Refer to information above. What is your investment strategy regarding the three stocks?

a) Buy X and Y, sell Z.
b) Sell X, Y and Z.
c) Sell X and Z, buy Y.
d) Buy X, Y and Z.
e) Buy X and Z, sell Y.

Question 8: The expected return for Zbrite stock computed by using the CAPM is 15.5%. The risk free rate is 3.5% and the beta of the stock is 1.2. Computed the implied market risk premium.

a) 5.5%
b) 6.5%
c) 10.0%
d) 15.5%
e) 12.0%

Question 9: Consider the given two factor APT model:

E(R) = λ₀ + λ₁b₁ + λ₂b₂

a) λ₁ is the expected return on the asset with zero systematic risk.
b) λ₁ is the expected return on asset 1.
c) λ₁ is the pricing relationship between the risk premium and the asset.
d) λ₁ is the risk premium.
e) λ₁ is the factor loading.

Question 10: In the APT model the idea of riskless arbitrage is to assemble a portfolio that:

a) Needs some initial wealth, will bear no risk and still earn a profit.
b) Needs no initial wealth, will bear no risk and still earn a profit.
c) Needs no initial wealth, will bear no systematic risk and still earn a profit.
d) Needs no initial wealth, will bear no unsystematic risk and still earn a profit.
e) Needs some initial wealth, will bear no systematic risk and still earn a profit.