FIN 534 RANK Imagine Your Future /fin534rank.com FIN 534 RANK Imagine Your Future /fin534rank.com | Page 63
them is zero. Portfolio P consists of 50% X and 50% Y. Given this
information, which of the following statements is CORRECT?
a. Portfolio P has a standard deviation of 20%.
b. The required return on Portfolio P is equal to the market risk premium
(rM − rRF).
c. Portfolio P has a beta of 0.7.
d. Portfolio P has a beta of 1.0 and a required return that is equal to the
riskless rate, rRF.
e. Portfolio P has the same required return as the market (rM).
4. Which of the following statements is CORRECT?
a. When diversifiable risk has been diversified away, the inherent risk
that remains is market risk, which is constant for all stocks in the market.
b. Portfolio diversification reduces the variability of returns on an
individual stock.
c. Risk refers to the chance that some unfavorable event will occur, and
a probability distribution is completely described by a listing of the
likelihoods of unfavorable events.
d. The SML relates a stock's required return to its market risk. The slope
and intercept of this line cannot be controlled by the firms' managers,
but managers can influence their firms' positions on the line by such
actions as changing the firm's capital structure or the type of assets it
employs.
e. A stock with a beta of -1.0 has zero market risk if held in a 1-stock
portfolio.