Problem 1) Stock A has a beta = 0.8, while Stock B has a beta = 1.6. Which of the following statements is most correct?
a. Stock B's required return is double that of Stock A's.
b. An equally weighted portfolio of Stock A and Stock B will have a beta less than 1.2.
c. If market participants become more risk averse, the required return on Stock B will increase more than the required return for Stock A.
d. All of the answers above are correct.
e. Answers a and c are correct.
Problem 2) Which of the following statements is most correct?
a. The typical R2 for a stock is about 0.3 and the typical R2 for a portfolio is about 0.3.
b. The typical R2 for a stock is about 0.94 and the typical R2 for a portfolio is about 0.6.
c. The typical R2 for a stock is about 0.3 and the typical R2 for a portfolio is about 0.94.
d. The typical R2 for a stock is about 0.94 and the typical R2 for a portfolio is about 0.94.
e. The typical R2 for a stock is about 0.6 and the typical R2 for a portfolio is about 0.6.
Problem 3) What is the present value of a 5-year ordinary annuity with annual payments of $200, evaluated at a 15 percent interest rate?
a. $ 670.43
b. $ 842.91
c. $1,169.56
d. $1,348.48
e. $1,522.64