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27 Nov 2019

Which of the following statements is true?

1. A growth stock would pay low (or no) dividends.
2. Low cap stocks provide the lowest potential rate of return.
3. Blue chip stocks provide a greater growth potential than growth stocks.
4. A risk averse investor would prefer low cap stocks to large cap stocks.

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Bunny Greenfelder
Bunny GreenfelderLv2
18 Jul 2019
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You are a small money manager managing $9,000,000 in assets. Your investment portfolio consists of 10% T-bills (with an estimated beta = 0), 15% bonds (with an estimated beta = 0.70), 35% mid-cap stocks (with an estimated beta = 1.00), and 40% growth stocks (with an estimated beta = 1.40).

The risk-free rate, rRF, is 3.5%. The market risk premium, (rM - rRF), is 5.0%. What is the required rate of return on your investment portfolio? (10 points)

If you switch $450,000 out of T-bills and invest $300,000 of it in growth stocks and $150,000 of it in mid-cap stocks, what would be the required rate of return on your portfolio? (10 points

You are a small money manager managing $9,000,000 in assets. Your investment portfolio consists of 10% T-bills (with an estimated beta = 0), 15% bonds (with an estimated beta = 0.70), 35% mid-cap stocks (with an estimated beta = 1.00), and 40% growth stocks (with an estimated beta = 1.40).

The risk-free rate, rRF, is 3.5%. The market risk premium, (rM - rRF), is 5.0%. What is the required rate of return on your investment portfolio? (10 points)

If you switch $450,000 out of T-bills and invest $300,000 of it in growth stocks and $150,000 of it in mid-cap stocks, what would be the required rate of return on your portfolio? (10 points

You are a​ risk-averse investor who is considering investing in one of two economies. The expected return and volatility of all stocks in both economies are the same. In the first​ economy, all stocks move together—in good times all prices rise​ together, and in bad times they all fall together. In the second​ economy, stock returns are independent -----one stock increasing in price has no effect on the prices of other stocks. Which economy would you choose to invest​ in? Explain. ​(Select the best choice​ below.)

A. A risk-averse investor would choose the economy in which stocks move together because the uncertainty is much more​predictable, and you have to predict only one thing.

B. A risk-averse investor would prefer the economy in which stock returns are independent because by combining the stocks into a portfolio he or she can get a higher expected return than in the economy in which all stocks move together.

C. A risk-averse investor would choose the economy in which stock returns are independent because risk can be diversified away in a large portfolio.

D. A risk-averse investor is indifferent in both cases because he or she faces unpredictable risk.

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