# Stock's beta, present value of an ordinary annuity

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.

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.

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

#### Solution Preview

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 ...

#### Solution Summary

Answers 3 Multiple Choice Questions on Stock's beta, R2 for a stock and a portfolio, present value of an ordinary annuity