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Stock's beta, present value of an ordinary annuity

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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

\$2.19