1. Which one of the following portfolios has the least amount of systematic risk?
a) a portfolio consisting of various U.S. Treasury bills
B) a portfolio that duplicates the overall market
C) a stock portfolio with a portfolio beta of 2.8
D) a portfolio comprised of 50 percent cash and 50 percent large-company stocks
2. 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 0.8. What is the expected return on this portfolio?
A) 11.20 percent
B) 10.41 percent
C) 12.33 percent
D) 13.87 percent
3. The slope of the security market line is equal to:
A) one.
B) the market rate of return.
C) the risk-free rate plus the market risk premium.
D) the market risk premium.
4. Which one of the following represents the best estimate for a firm's pre-tax cost of debt?
A) current yield on the firm's outstanding debt
B) weighted average yield-to-maturity on the firm's outstanding debt
C) coupon rate on the firm's latest bond issue
D) average coupon rate on the firm's outstanding bonds
5. You would like to invest $20,000 and have a portfolio expected return of 10 percent. You are considering two securities, A and B. A has an expected return of 16 percent and B has an expected return of 8 percent. How much should you invest in stock A if you invest the balance in stock B to achieve the 10 percent portfolio return?
A) $4,500
B) $6,250
C) $5,000
D) $7,000