1. Stocks A and B in a portfolio earn annual returns of 12% and 15%, respectively. If an investor invests 70% of his money in Stock A and 30% in Stock B, what is the expected annual return of the investor’s portfolio?

13.5%

12.9%

14.1%

27%

2. Most stocks have betas in the range of zero to one.

True

False

3. The APT (Arbitrage pricing Theory) is a single factor model. The CAPM (Capital Assets Pricing Model) proposes that the relationship between risk and return is more complex and may be due to multiple factors.

True

False

4. To calculate a stock’s beta, we run a regression line of past returns on the stock versus returns on the market. The regression line is called the characteristic line. The slope coefficient of the characteristic line is defined as the beta coefficient.

True

False

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