Question 1: A stock portfolio is equally allocated among Stock A, B, and C. Stocks A, B, and C have betas of 1.9, 1, and 0.57, respectively. The market has just risen 4%. What would you expect to happen to this stock portfolio?
A. The stock portfolio will rise 3.8%.
B. The stock portfolio will rise 4%.
C. The stock portfolio will rise 4.6%.
D. The stock portfolio will rise 5%.
Question 2: The risk-free rate of return is currently 5 percent, whereas the market risk premium is 11 percent. If the beta of Briar Tek's stock is 2, then what is the expected return on Briar Tek?
A. 27.50%
B. 28.00%
C. 26.50%
D. 27.00%
Question 3: You invested $15,000 in a portfolio with an expected return of 10 percent and $10,000 in a portfolio with an expected return of 16 percent. What is the expected return of the combined portfolio?
A. 16.00%
B. 12.85%
C. 13.10%
D. 12.40%
Question 4: Karen purchased a stock for $40 last year. She found out today that she had a -75% return on her investment. Which of the following must be true?
A. The stock is worth $10 today.
B. The stock is worth $30 today.
C. The stock paid no dividends during the year.
D. Both A and C must be true.