chapter 6

Question 1

The slope of the regression line that exhibits the past relationship between a stock’s return and the market’s
return is the

Answer 1

stocks beta

pay attention to the realationship they are highlighting nothing else really matters

Question 2

when given risk free return and market return what formula do we use

Answer 2

expected return = risk free + B(market return - risk free)

Question 3

what formula to used when given the risk premium

Answer 3

return = risk free + (B x market risk premium)

Question 4

what is the beta of a regular stock on the market

Answer 4

it has a beta of 1

Question 5

what is the beta of a trsury bond

Answer 5

beta of 0

Question 6

what does it mean to have a high or low beta value

Answer 6

that means that the stock will be more sensitive to the market changes so the price can go up a lot or down a lot depening on the market

Question 7

what is the relation ship between return demanded and market risk

Answer 7

they are directly related so if the market risk increases then the demand will also increase

Question 8

what is the relationship with project cost of capital and company cost

Answer 8

there is no relationship between the two

Question 9

when would you accept a investment when comparing required return to expected

Answer 9

only accept if the required is less then the expected

Question 10

(T/F) An investor who puts $10,000 into treasury bills and $20,000 into the
market portfolio will have a market portfolio beta of 2

Answer 10

false cuz the beta of a stock is 1 and the beta of a treasurey is 0 so theres no way for it to equal 2