Portfolio P Has Equal Amounts Invested in Each of the Three

question 137

Multiple Choice

Portfolio P has equal amounts invested in each of the three stocks, A, B, and C.Stock A has a beta of 0.8, Stock B has a beta of 1.0, and Stock C has a beta of 1.2.Each of the stocks has a standard deviation of 25%.The returns on the three stocks are independent of one another (i.e., the correlation coefficients all equal zero) .Assume that there is an increase in the market risk premium, but the risk-free rate remains unchanged.Which of the following statements is CORRECT?

• A) The required return on Stock A will increase by less than the increase in the market risk premium, while the required return on Stock C will increase by more than the increase in the market risk premium.
• B) The required return on the average stock will remain unchanged, but the returns of riskier stocks (such as Stock C) will increase while the returns of safer stocks (such as Stock A) will decrease.
• C) The required returns on all three stocks will increase by the amount of the increase in the market risk premium.
• D) The required return on the average stock will remain unchanged, but the returns on riskier stocks (such as Stock C) will decrease while the returns on safer stocks (such as Stock A) will increase.
• E) The required return of all stocks will remain unchanged since there was no change in their betas.

Analyze the structure of personal income tax rates and their impact at different income levels.

Evaluate the arguments for and against state-run lotteries as a source of government revenue.

Understand the principles and types of taxation.

Differentiate between progressive, regressive, and proportional taxes.

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Definitions:

Financial Statements

Structured reports detailing the financial performance, position, and cash flows of an entity, including the balance sheet, income statement, and statement of cash flows.

Accrued Revenues

Revenues earned but not yet received in cash or recorded at the statement date.

Financial Position

Refers to the status of a company's assets, liabilities, and equity at a specific point in time, illustrating its economic resources and how it is financed.

Statement of Income

A financial document showing a company's income, expenses, and net profit over a specific period.