FIN 301 Study Guide - Quiz Guide: S&P 500 Index, Standard Deviation, Capital Asset Pricing Model
Group 1
1. Below are the standard deviations of company stock prices throughout the year. Which one is the most
risky?
A. Company 1- Standard deviation=34%
B. Company 2- Standard deviation=28%
C. Company 3- Standard deviation=8%
D. Company 4- Standard deviation=17%
E. Company 5- Standard deviation=23%
Answer: A
2. Below are the standard deviations of company stock prices throughout the year. Which one is the least risky?
A. Company 1- Standard deviation=47%
B. Company 2- Standard deviation=18%
C. Company 3- Standard deviation=12%
D. Company 4- Standard deviation=34%
E. Company 5- Standard deviation=58%
Answer: C
Group 2
1. If a stock has a beta of 4, what can one infer about the expectations of that stock relative to the market?
A. The stock is four times as risky as the market.
B. The stock is as risky as the market.
C. The stock's expected return is equal to that of the market.
D. The stock will tend to have movements equal to ¼ the market.
E. The stock will tend to double market movements.
Answer: A
2. If a stock has a beta of 2, what can one infer about the expectations of that stock relative to the market?
A. The stock is as risky as the market.
B. The stock is less risky than the market.
C. The stock's expected return is equal to that of the market.
D. The stock will tend to double market movements, both up and down.
E. The stock will tend to have movements equal to ½ the market.
Answer: D
Group 3
1. Estimate the beta for the stock given the following information (closest answer):
Year 1: Stock return = 2.75%; Market return = 2.5%
Year 2: Stock return = -1.32%; Market return = -1.2%
A. -0.6
B. 1.1
C. 1.25
D. -0.9
E. 0.4
Answer: B
2. Estimate the beta for the stock given the following information (closest answer):
Year 1: Stock return = 5.2%; Market return = 6.5%
Year 2: Stock return = -0.48%; Market return = -0.6%
A. 0.5
B. -0.4
C. 0.8
D. 1.3
E. -0.1
Answer: C
Group 4
1. Using the CAPM, calculate the expected return for Company XYZ:
Beta = 1.3
Treasury Bill rate = 2.25%
S&P 500 averaged return rate = 9.25%
A. 12.03%
B. 11.35%
C. 12.8%
D. 2.93%
E. 8.9%
Answer: B
2. Using the CAPM, calculate the expected return for Company XYZ:
Beta = 0.7
Treasury Bill Rate = 3.25%
S&P 500 averaged return rate = 12.25%
A. 2.28%
B. 16.2%
C. 15.5%
D. 8.58%
E. 9.55%
Answer: E
Group 5
1. Given the following information, calculate the alpha of the portfolio:
Beta = 1.6
T-Bills Rate = 3.0%
S&P 500 averaged return rate= 7.2%
Actual Return on the Portfolio = 12%
A. 2.3%
B. 9.7%
C. -2.6%
D. 4.8%
E. 10.4%
Answer: A
2. Given the following information, calculate the alpha of the portfolio:
Beta = 0.5
T-Bills Rate = 3.25%
S&P 500 averaged return rate= 8.6%
Actual Return on the Portfolio = 5%
A. -0.9%
B. 5.9%
C. 6.8%
D. -3.6%
E. 2.1%
Answer: A
Group 6
1. Which of the following is true concerning the alpha of a portfolio?
A. A negative alpha is desirable.
B. A positive alpha is a sign of poor performance.
C. If a stock’s alpha falls below the risk-return line, the stock performed better than expected.
D. Alpha is a measure of how a stock performed relative to its expected performance.
E. If a stock’s alpha is above the risk-return line, the stock performed worse than expected.
Answer: D
2. Which of the following is true concerning the alpha of a portfolio?
A. Alpha is always positive for any stock.
B. A positive alpha is a sign of poor performance.
C. If a stock’s alpha falls below the risk-return line, the stock performed better than expected.
D. Stocks that perform worse than their expected return will have a negative alpha.
E. If a stock’s alpha is above the risk-return line, the stock performed worse than expected.
Answer: D
Group 7
1. In an efficient market, how do stocks respond to news?
A. A stock's response depends on the previous day's performance.
B. Stocks do not respond to news.
C. Stocks immediately respond to news.
D. Stocks respond by gradually adjusting to the news in the market.
E. None of the above
Answer: C
2. Which of the following scenarios is an example of efficient markets?
A. Markets are efficient when stock prices react slowly to new information.
B. Markets are efficient when information is not fully reflected in stock prices.
C. Markets are efficient when bond prices increase with an interest rate increase.
D. Markets are efficient when trading opportunities are abundant.
E. Markets are efficient when stock prices respond immediately to relevant news.
Answer: E
Group 8
1. Which form of market efficiency states that stock prices reflect the information contained in the history of
past stock prices and trading volume?
A. Weak form
B. Semi-strong form
C. Strong form
D. Both semi-strong and strong form only
E. None of the above
Answer: A
2. Which form of market efficiency states that stock prices reflect all information, including private
information?
A. Semi-Strong Form
B. Weak Form
C. Strong-Form
D. Weak Form and Semi-Strong Form only
E. None of the above.
Answer: C
Group 9
1. According to the Random Walk Hypothesis, in efficient markets, ________.
Document Summary
Below are the standard deviations of company stock prices throughout the year. The stock is four times as risky as the market. The stock will tend to have movements equal to the market. The stock will tend to double market movements. Answer: a: below are the standard deviations of company stock prices throughout the year. Year 1: stock return = 2. 75%; market return = 2. 5% Year 2: stock return = -1. 32%; market return = -1. 2% Year 1: stock return = 5. 2%; market return = 6. 5% Year 2: stock return = -0. 48%; market return = -0. 6% The stock is as risky as the market. The stock is less risky than the market. The stock"s expected return is equal to that of the market. The stock will tend to double market movements, both up and down. Estimate the beta for the stock given the following information (closest answer): Using the capm, calculate the expected return for company xyz:
