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9.___ __ Combining assets that are not perfectly correlated does
affect both the expected return of the portfolio as well as the risk of
the portfolio.
10.__ ___ Bond rating agencies include the analysis of financial
ratios in arriving at corporate bond ratings. Multiple choice (4 points
each)
Multiple Choice
11. In the context of the Capital Asset Pricing Model (CAPM) the
relevant measure of risk is
12. According to the Capital Asset Pricing Model (CAPM) a well
diversified portfolio's rate of return is a function of
13. The premise of behavioral finance is that
14. The efficient market hypothesis ____________.
15. The CAPM is not testable unless
16. The duration of a bond is a function of the bond's A. coupon rate.
B. yield to maturity. C. time to maturity. D. All of these are correct. E.
None of these is correct.
17. Treasury STRIPS are
Problems/Essay:
Problem 1(15 points): Be sure to show your work for computations.
Use CAPM methodology to compute the following:
Problem 2 (15 points) High Tech Chip Company paid a dividend last
year of $2.50. The expected ROE for next year is 12.5%. An
appropriate required return on the stock is 11%. If the firm has a