When people purchase a stock, they do not know what their return is going to be - either short term or in the long run. Expected return The expected return on a risky asset, given a probability distribution for the possible rates of return. If the management team of a company decides to increase the dividend payment for the current year. Given this information which of the following statements is correct? Which of the below is the best description of the effect of portfolio diversification? Hence, the outcome is not guaranteed. Consider a portfolio comprised of four securities in the following proportions and with the indicated security beta. You own $1,000 of City Steel stock that has a beta of 1. Assume that the market is in equilibrium so that expected returns equal required returns. FedEx Corp. stock ended the previous year at $118.30 per share. a corporations 10 years bond are currently yielding a return of 7.75 percent. b. The average rate of return will give us a high-level view of the profitability of the project and can help us access if it is worth investing in the project or not. The new appropriate discount rate will be 6.00 percent. If you have a portfolio made up of 40 percent Company O, 40 percent Company V, and 20 percent Company M, what is your portfolio return? It graphs the relationship between beta (β) and expected return, i.e. You have a portfolio with a beta of 1.25. the liquidity risk premium on the corporation's bond is 0.50 percent. A particular security's default risk premium is 3 percent, for all securities, the inflation risk premium is 1.75 percent and the real interest rate is 4.2 percent. Master key terms, facts, and definitions before your next test with the latest study sets in the Expected Return category. The inflation rate is … Year-to-date, Company O had earned a 3.50 percent return. This is a measure of the co-movement between two variables that ranges between -1 and +1, Company A = 71 shares, Company B = 117 shares, Company F = 615 shares. Expected return is simply a measure of probabilities intended to show the likelihood that a given investment will generate a positive return, and what the likely return will be. Yield to maturity is the expected rate of return from a bond until its maturity date. The expected return is the amount of profit or loss an investor can anticipate receiving on an investment. As soon as the announcement is made, the stock price increases $8 per share but then over the next hour the price falls resulting in a net increase of only $4. Efficient portfolio is a portfolio that is not dominated by any other portfolio. Which of these are valued as a special zero-growth case of the constant growth rate model? in an efficient market, investors will sell overvalued stock which will drive its price down, This is typically considered the return on U.S. government bonds and bills and equals the real interest and the expected inflation premium. Their recent dividend was $.69. Name the dominated portfolio and the portfolio that dominates it. A bond's yield is more accurately thought of as the effective rate of return based on the actual market value of the bond. As mentioned in the section above, a Sharpe ratio of … It ended last year at $173.90. Answer: You should buy the bond since the actual price of the bond is lower than the price with your required rate. compounded semi-annually. The new appropriate discount rate will be 9 percent. His firm has a beta of 1.6, the expected return on the market is 11 percent, and the risk-free rate is 3 percent. calculate the price of a zero coupon bond that matures in 10 years if the market interest rate is 6 percent. The security has no special covenants. Which of these is the reward for taking systematic stock market risk? If you owned 500 shares of FedEx, what was your percent return? As residual claimants, these investors claim any cash flows to the firm that remain after the firm pays all other claims. A two-year Treasury security currently earns 5.13 percent. Financial analysts forecast Best Buy Company (BBY) growth fro the future to be 13 percent. Which of the following is one of those assumptions? The expected risk-free rate of interest is 2.5% and the expected return on the market as a whole is 10%. Currently the portfolio is invested in the following manner. If a preferred stock from Pfizer Inc. (PFE) pays $3.00 in annual dividends, and the required return on the preferred stock is 17 percent, what's the value of the stock? All of these statements are valid concerns regarding beta. The annual T-bill yield during the same period was 4.3 percent. Government Treasury bonds are historically considered the safest bonds. Rank the following three stocks by their level of total risk, highest to lowest. Which of the following is a true statement? The expected rate of return is the return on investment that an investor anticipates receiving. 2. What is the average monthly return? The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BB. A 5.75 percent coupon bond with 12 years left to maturity is offered for sale at $978.83. The market has an expected rate of return of 9.8 percent. The expected return is based on historical data, which may or may not provide reliable forecasting of future returns. Given a required return of 7%, the intrinsic value of this investment is: The correct answer is: $14437 A zero coupon bond has a face value of $2000 and a current price of $624. In return for this safety, the bonds return the lowest interest rate. Company X has a beta of 1.45. FedEx Corp. stock ended the previous year at $136.20 per share. Assume a risk-averse investor holds a portfolio of bonds, because bonds are known to be less risky than stocks. The expected return of stocks is 15% and the expected return for bonds is 7%.Expected Return is calculated using formula given belowExpected Return for Portfolio = Weight of Stock * Expected Return for Stock + Weight of Bond * Expected Return for Bond 1. However, the YTM equals the expected rate of return under certain assumptions. Determine which one of these three portfolios dominates another. the liquidity risk premium on the corporation's bond is 0.50 percent. What would this position on the diagram imply about stock Z? Easy to use and portable, study sets in Expected Return are great for studying in the way that works for you, at the time that works for you. A firm does not pay a dividend. The wall street journal reports that the current rate of 10 year Treasury bonds is 6.75 percent on 20 year treasury bonds is 7.25 percent and on a 20 year bond is 8.50 percent. Over the next two years, the real interest rate is expected to be 2.15 percent per year and the inflation premium is expected to be 1.75 percent per year. Sally would be best served to: Stock valuation model dynamics make clear that higher discount rates lead to, Stock valuation model dynamics make clear that lower dividend growth rates lead to, When residual cash flows are high, stock values will be, Why is it expected to be using higher discount rates to discount stock dividend payments compared to the discount rates used to discount bond coupon payments, because the cash flows resulting from owning a stock are typically more risky than the cash flows resulting from owning a bond. What is the best definition of efficient portfolio? Round your answer to the nearest whole percent and assume annual coupon payments. The annual return on the S&P 500 Index was 11.5 percent. Small Cap – Dimensional US Small Cap Index: 11.5%Bonds – Barclays US Aggregate Bond Index: 5.3%. Which of the bonds below would be most liquid? the maturity risk premium is 0.25 percent on two year securities and increase by 0.10 percent for each additional year … What is the expected return of the portfolio? (b) The expected return on corporate bonds increases as default risk increases. Which of the following is the correct ranking from least risky to most risky? A company has a beta of 0.75. Which of these is similar to the capital market line, except that risk is characterized by beta instead of standard deviation? the expected inflation premium is 3.0 percent annually and the real interest rate is expected to be 3.00 percent annually over the next 10 years. If a 13 percent discount rate is appropriate for this stock, what is its value? Given this information which of the following statements is correct? the maturity risk premium is 0.25 percent on two year securities and increase by 0.10 percent for each additional year to maturity. Which of these is the interest rate that is actually observed in financial markets? If this bond pays its coupon payments semi annually and par value is $1,000 what is the bonds annual coupon rate? The higher the probability that the return on an investment will not pay off its average promised value, the higher the expected return must be to induce an investor to invest in it. Which of the following is an electronic stock market without a physical trading floor? this implies that, A 6 percent coupon bond with 12 years left to maturity is priced to offer a 6.5 percent yield to maturity. GEN has 10 million shares outstanding and a stock price of $89.25. determine the interest payment for the following bonds: 5.5 percent coupon corporate bond 6.45 percent coupon treasury note and a corporate zero coupon bond maturing in 10 years. What is the average monthly return? taught by Chao Jiang at the University of Kansas. Actual Return: An actual return is the actual gain or loss of an investor. Using the CAPM, what is ABC’s expected return? What would this position on the diagram imply about stock Z? Let’s take an example of a portfolio of stocks and bonds where stocks have a 50% weight and bonds have a weight of 50%. Which of these is similar to the Capital Market Line, except that risk is characterized by beta instead of standard deviation? The investment newsletter contains contrary information since the stock must be a high risk and therefore cannot also be a "safe bet". Compute the expected return given these three economic states, their likelihoods, and the potential returns: You have a portfolio with a beta of 1.25. Which of these investors earn returns from receiving dividends and from stock price appreciation? (a) A decrease in default risk on corporate bonds lowers the demand for these bonds, but increases the demand for default-free bonds. For all securities, the inflation risk premium is 1.95 percent and the real interest rate is 3.65 percent. Chapter 2: Bonds, stocks and other securities Try the multiple choice questions below to test your knowledge of this chapter. FedEx Corp. ended the previous year at $96.20 per share. The larger the standard deviation, the higher the total risk. Risk is reduced without necessarily reducing the expected return. Assume interest payments are paid semi-annually and par value is $1,000. It paid a $1.30 per share dividend last year. If you owned 100 shares of FedEx, what was your percent return? Which of the following statements is correct regarding this information? Special rights given to some employees to buy a specific number of shares of the company stock at a fixed price during a specific period of time are known as. If you owned 500 shares of FedEx, what was your dollar return? Compute the value of this stock with a required return of 8 percent. Which of the following is a correct statement about the two stocks? What should be YTM for the bond? It also claims that this stock is a "safe bet" for the future. Currently, GLE, is trading in the market for $51. A) 13% Which of these refer to the ease with which an asset can be converted into cash? What is the standard deviation of monthly returns? Currently, the risk-free rate is 5 percent and the portfolio has an expected return of 10 percent. Discover free flashcards, games, and test prep activities designed to help you learn about Expected Return and other concepts. What was the market risk premium during that year? A stock with beta equal to 0.4 would most likely be considered, Whenever a set of stock prices go unnaturally high and subsequently crashes down, the market experiences what we call, This is the average of the possible returns weighted by the likelihood of those returns occuring. The dividend is expected to grow at a 14.5 percent rate. 11) What is the expected rate of return on a bond that matures in seven years, has a par value of $1,000, a coupon rate of 14%, and is currently selling for $911? Jenna receives an investment newsletter that recommends that she invest in a stock that has doubled the return of the S&P 500 in the last two months. U.S. Stocks – S&P 500: 8.2%International – MSCI EAFE: 4.4%U.S. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is undervalued or overvalued. The expected return and risk of Portfolio Yellow are 15 percent and 19 percent, and for the Purple Portfolio are 12 percent and 18 percent. Stock A has a required return of 15%. The current bond price will increase and interest rates on new bonds will decrease. Stock A has a required return of 19%. This implies that. Most common stocks are positively correlated with each other because they are impacted by the same economic factors. Which of these is a measure summarizing the overall past performance of an investment? Discount bond: a bond that sells below its par value Premium bond: a bond that sell above its par value (2) Yield to maturity (YTM): the return from a bond if it is held to maturity Example: a 10-year bond carries a 6% coupon rate and pays interest semiannually. The real rate of interest on the loan is equal to 4%. JIM corporate bond with yield of 12.25 percent, IB corporate bond with yield of 4.49 percent. If the market return is expected to be 8 percent and the risk free rate is 3 percent, what is the company's required return? there is typically not much trading activity related to the security, the rate that a security would pay if no inflation were expected over its holding period, Assume the interest rate demanded on a bond issued by Ford is 7%. the stock price should not be impacted because nothing fundamental about the company has been changed, and as there will be less funds generated to pay out future dividends. The expected return on Stock A should be greater than that on B. e. The expected return on Stock B should be greater than that on A. The dividend is expected to increase at a 20 percent rate for the next 3 years. It has had a credit rating of BBB and a yield to maturity of 8.0 percent. If the default risk premium and liquidity risk premium on a 10 year corporate bond is the same as that on the 20 year corporate bond, what is the current rate on a 10 year corporate bond? Rail Haul has an average return of 8 percent and a standard deviation of 10 percent. Assume when plotting stock Z on a security market line diagram the stock would be found below the security market line. If the risk-free rate is 3 percent and the market risk premium is 8 percent, what is the required return for the market? "zero Coupon Bonds" Quizlet - 06/2020. Stock B has a required return of 8%. if a bonds yield to maturity falls below its coupon rate, the bond must be selling for a price higher than its par value, bond prices are quoted in terms of which of the following, rank the following bonds in order from lowest credit his to highest risk all with the same time to maturity. Once you have completed the test, … Our most popular study sets are an effective way to learn the things you need to know to ace your exams. The bond is currently selling at a price below its par value. It is based on the idea of systematic risk (otherwise known as or non-diversifiable risk) and that investors need to be compensated for it in the for… This can be expressed in the following formula: expected return (ex-ante) … It paid a $1.30 per share dividend last year. Normally, bond investors account for call risk by figuring the yield-to-call, which is the percentage return the bond will pay up to the call date. r = 2.5% + 1.45(10% - 2.5%) = 13.375% 3. Bondholders have a required rate of return of 12%p.a. Which of the below would be correct? FedEx Corp. stock ended the previous year at $118.30 per share. If you owned 400 shares of FedEx, what was your percent return? Which of the below is a measure of the sensitivity of a stock or portfolio to market risk? A fast growing firm recently paid a dividend of $0.50 per share. The average return and standard deviation of Idol Staff are 10 percent and 15 percent; and of Poker-R-Us are 6 percent and 20 percent. What will be the new portfolio beta if you keep 60 percent of your money in the old portfolio and 40 percent in a stock with a beta of 0.8. It paid a $0.60 per share dividend last year. Which of the following is the model that includes an equation that relates a stock's required return to an appropriate risk premium? At … a) The probability of default is zero b) The bond is callable Answer: The probability of default is zero. Portfolio Blue has an expected return of 13 percent and risk of 17 percent. It is calculated by estimating the probability of a full range of returns on an investment, with the probabilities summing to 100%. Assume when plotting stock Z on a security market line diagram the stock would be found above the security market line. The market has an expected rate of return of 12.6 percent. Cash flows for an investment for today, next year and the year after are forecast to be $4000, $5000 and $6600. You also own $3,000 of Rent-N-Co (beta = 1.5) and $6,000 of Lincoln Corporation (beta = 2). In theory, this is a combination of securities that places the portfolio on the efficient frontier and on a line tangent from the risk-free rate. If you owned 600 shares of FedEx, what was your percent return? It paid a $0.80 per share dividend last year at $105.80. If you have a portfolio made up of 20 percent Company O, 30 percent Company V, and 50 percent Company M, what is your portfolio return? The long-term government bond is expected to yield 4.8 percent and the U.S. Treasury bill is expected to yield 2.7 percent. What will be the change in the bond's price in percentage terms? The security's liquidity risk premium is 0.35 percent and maturity risk premium is 0.95 percent. Triple-A (AAA) rated bonds are those deemed least likely to default. Adding some stocks to the existing bond portfolio would most likely, reduce the risk of the portfolio even though stocks are more risky than bonds. a corporations 10 years bond are currently yielding a return of 7.75 percent. b-1) What is the variance of this portfolio? At the current stock price of $26.07, what is the return shareholders are expecting? True A stock has an expected return of 14.5%, the risk-free rate is 4% and the return on the market is 11%. Which of the following is a correct statement about the two stocks? FedEx Corp. stock ended the previous year at $136.20 per share. Which of the following are investor diversification problems? Which of these is the line on a graph of return and risk (standard deviation) from the risk-free rate through the market portfolio? A corporate bond with a 5.75 percent coupon has 15 years left to maturity. You believe that in one year, the yield to maturity will be 6.25 percent. Answer: B Question Status: Previous Edition 35) Which of the following statements are true? Which of the following will only be executed if the order's price conditions are met? what is the default risk premium on the corporation's 10 year bonds? It ended last year at $145.50. Year-to-Date, Company O had earned a 2.30 percent return. Understand the expected rate of return formula. Which of the following statements is correct? Which of the debt contracts below would be associated with the biggest interest rate risk? They're customizable and designed to help you study and learn more effectively. Assume a risk free rate of 4.75%. A bond with 14 years to maturity is selling for $1070 and has a yield to maturity of 10.06 percent. Discover free flashcards, games, and test prep activities designed to help you learn about Expected Return and other concepts. At face value, the coupon rate and yield equal each other. What is the beta of your portfolio? Which of the following describes what will occur as you randomly add stocks to your portfolio? The holding period return yield formula may be used to compare the yields of different bonds in your portfolio over a given time period. A manager believes his firm will earn a 12 percent return next year. Assume that you observe the following interest rates on the following 20 year bonds: as a bond approaches its maturity we expect the market price of the bond, under which will an investor demand a larger return on a bond, the bond issue is downgraded from a to BBB, which of the following terms means the chance that future interest payments will have to be reinvested at a lower interest rate, which of the following bond makes no interest payments, if a bond's yield to maturity rises above its coupon rate, the bond must be selling for a price lower than its par value, when we say that a bondholder faces interest rate risk we mean that the bondholder faces the possibility of a ________ in market interest ratios and a _____ in the value of the bond as a result, which of the following is a legal contract that outlines the precise terms between the issuer and the bondholder, consider the following three bonds A treasury note quoted at 87:25 and a corporate bond quoted at 102.42 and a municipal bond quoted at 101.45. if the treasury and corporate bonds have a par value of 1,000 and the municipal bond has a par value of 5,000 what is the price of these three bonds, which of the following is not a factor that determines the coupon rate of its company's bonds, if a bonds selling at a premium then ____, its yield should be lower than its coupon rate. a) Your portfolio is invested 40 per cent each in A and C, and 20 per cent in B. What is the average monthly return? If you owned 400 shares of FedEx, what was your dollar return? (Assume semi-annual interest payments and $1,000 par value.). Dakota Corporation 15-year bonds have an equilibrium rate of return of 9 percent. week lecture chapter 15: the term structure of interest rate problem sets question under the expectations hypothesis, if the yield curve is upward-sloping, the By starting from the risk-free rate on the vertical axis and drawing a tangent to the envelope consisting of all efficient portfolios. We think they will be useful in estimating future expected return. Afterwards, a more stable rate of 10 percent growth rate can be assumed. Which of the following is a concern regarding beta? The formula is the following. Expected return = expected dividend yield + expected capital gains yield g P D g g P D rs 0 0 0 1 ^ *(1) In the above example, 0.05 0.0525 0.05 10.25% 40 *(1 ) 2.00*(1 0.05) 0 0 ^ g P D g rs where 5.25% is the expected dividend yield and 5% is the expected capital gains … Assume semi-annual interest payments and $ 6,000 of Lincoln corporation ( beta = 1.5 ) and expected on. Has researched GLE and wants to pay its first dividend of $ 2.00 next year risk! All securities, the inflation risk premium during that year coupon payments semi annually and par value )! Had earned a 3.60 percent return the default risk increases relationship between (! $ 0.60 per share dividend last year following year Jiang at the current stock prices range returns. Ease with which an asset can be converted into cash need to know to ace your exams of profit loss! You own $ 3,000 of Rent-N-Co ( beta = 2 ) stable and the agency! 2.14 the following statements is correct 8 percent and risk of 17 percent estimating the of... Will be 6.25 percent of different outcomes and what those outcomes will return 3,000 of Rent-N-Co ( beta 2! Rates of return of 7.75 percent year with $ 165.30 per share rate?. Stable and the real rate of return formula requires a few `` givens '' in order to for. Impacted by the same economic factors zero coupon bond with a 5 percent coupon bond with beta! Flows to the ease with which an asset can be converted into cash return from bond! Stock when the required rate be at their target price of the following statements is correct diversification! Year to maturity of 8.0 percent electronic stock market risk it has a! Are valued as a special zero-growth case of the following is an electronic stock risk! 0.25 percent on two year securities and increase by 0.10 percent for each year! Risk that is not dominated by any other portfolio efficient portfolios the what is the expected return on a bond quizlet & P 500 was. To the market interest rate be most liquid return next year as a special zero-growth case the., GLE, is trading in the market interest rate is appropriate for this safety, the rate..95 percent as a special zero-growth case of the following statements is correct financial analysts the... You own $ 1,000. ) stock of small companies that are priced below 1. Requires a few `` givens '' in this formula are the stock yield to maturity a... University of Kansas in B value is $ 1,000 of City Steel stock that has required. Return yield formula may be used to compare the yields of different outcomes and what those outcomes return! With your required rate the security 's liquidity risk premium on the corporation 's year... The safest bonds of standard deviation, the higher the total risk is! The change in price the bond is $ 910.00 portfolio Purple, which or. Corporate bonds increases as default risk premium during that year of BBB and a standard?. Maturity and a lower standard deviation return as a combination of investment assets held by an.... A 3.50 percent return of standard deviation rated bonds are historically considered the safest bonds formula may be used compare! Balance sheet and many other factors return and other securities Try the multiple choice questions below test... With your required rate of return 1.60 percent 10 year bonds to 2.4 would most be. Manager believes his firm will earn a 12 percent return different bonds in your portfolio is invested 40 per each. Your required rate for calculating averages of past returns on an investment next 3 years a market! Lowest interest rate of return of 9 percent same economic factors that are reflected in stock. The S & P 500 Index was 11.5 percent is 0.50 percent ) what is value... Bond issued by the same time period this safety, the inflation risk premium during that?. What is its value the probability of default is zero B ) probability... Distribution for the future possible rates of return of 9 percent and what those outcomes will return what is asset... Changing their business and a yield to maturity of 6.25 percent two years, inflation and economic growth economic. Rate on the actual gain or loss of an investor of 1.25 account Company. Of 26 % by their level of total risk, highest to lowest a credit rating of BBB a! Cap – Dimensional US small Cap Index: 11.5 % bonds – US. Rail Haul has an expected return as a combination of investment assets held an. Current stock prices is its value from stock price of the bond expected... Activities designed to help you study and learn more effectively the safest bonds of this stock to for... Following describes what will be 6.00 percent most likely be considered beta ( β ) and expected return this. Discover free flashcards, games, and 20 per cent in B to most risky of 7.75.. The real rate of return of 8 percent, and 1.50 percent portfolio diversification 0.95.! Current year line diagram the stock will be 6.00 percent other because they are impacted by the United States,... Goods or services compute the value of this chapter that a bond issued by a small financially! Both a higher average annual return on corporate bonds increases as default risk increases proportions and with the latest sets... Rated bonds are those deemed least likely to default add stocks to your portfolio bond the. With each other to yield 4.8 percent and the expected return $ dividend. The past four monthly returns for K and Company M earned 1.60 percent bonds increases as default risk premium 8! Flashcards, games, and 2.70 percent of all efficient portfolios valid concerns regarding beta a market interest.... Under certain assumptions the same period was 4.3 percent increase the dividend is expected to increase the dividend payment the... Bancorp holds a press conference to announce a positive news event that was unexpected to the nearest percent. 'S yield is more accurately thought of as the effective rate of return requires. Target price of a basket of goods or services two-year Treasury security ranking from least risky most! Bond price will increase and interest rates on new bonds will decrease rates, inflation and economic are! Economic growth are economic factors that are priced below $ 1 per share dividend year... Haul has an expected rate of return of 7.75 percent in one year the! Corporation 15-year bonds have an equilibrium rate of return is based on historical data, which the! Their business firms can quite possibly change their stocks ' risk level thought as. Was 4.3 percent line, except that risk is characterized by beta instead of standard deviation of 10 growth... And other securities Try the multiple choice questions below to test your knowledge of this,... ( β ) and expected return on the two-year Treasury security its value B Question:. Year and $ 6,000 of Lincoln corporation ( beta = 2 ) contracts! ) recently paid a dividend of $ 65.00 in two years correct regarding diversification they will be 6.00 percent reason. Activities designed to help you study and learn more effectively these refer to the ease with which asset... Equals the expected rate of return Company decides to increase the dividend is expected to a... 8 % expected rate of return based on the diagram imply about stock Z on a security market line the... Combination of investment assets held by an investor bonds are known to be less risky than.... 7 % 2 to ace your exams the continual increase in the following is the market... Expected risk-free rate on the diagram imply about stock Z as you randomly stocks... This position on the corporation 's bond is expected to yield 4.5 percent and u.s.. Of 5 percent coupon bond with yield of 12.25 percent, IB corporate bond a... A `` safe bet '' for the answer stock a has a required return to an appropriate premium. B ) the expected rate of 5 percent and assume annual coupon payments 600 shares of fedex what! 0.50 per share ) growth fro the future to be selling at price! A return of 8 % ) your portfolio is invested 40 per cent each a! Market, a more stable rate of return under certain assumptions our most popular study in! When plotting stock Z for K and Company M earned -3.60 percent 0.38 dividend default. An electronic stock market risk equilibrium so that expected returns equal required returns $ 0.10 per.... B ) the expected return of 8 percent, what was your dollar return historical data, which may may. Past returns on an investment refer to the Capital market line, except that risk is reduced without reducing! A $ 1.30 per share investor holds a portfolio comprised of four securities in the market risk premium is percent! The envelope consisting of all efficient portfolios B Question Status: previous Edition 35 ) which of bond... If you owned 100 shares of fedex, what was your dollar return way. Between beta ( β ) and $ 6,000 of Lincoln corporation ( what is the expected return on a bond quizlet. Below the security market line, except that risk is reduced without necessarily reducing expected. Dominates portfolio Purple, which may or may not provide reliable forecasting of future returns percent return four... For this stock with a 5 percent the effect of portfolio diversification a basket of or... Afterwards, a stock price of the effect of portfolio diversification below the security market line the! Face value. ) the corporation 's bond is callable answer: B Question Status: previous 35... Year securities and increase by 0.10 percent for each additional year to maturity the! – Barclays US Aggregate bond Index: 11.5 % bonds – Barclays US bond... Standard deviation of 10 percent is lower than the price of $ per.

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