Exam 7: Introduction to Risk and Return

Stock X has a standard deviation of return of 10%. Stock Y has a standard deviation of return of 20%. The correlation coefficient between stocks is 0.5. If you invest 60% of the funds in stock X and 40% in stock Y, what is the standard deviation of a portfolio?

The correlation coefficient between stock A and the market portfolio is +0.6. The standard deviation of return of the stock is 30% and that of the market portfolio is 20%. Calculate the beta of the stock.

One dollar invested in a portfolio of U.S. common stocks in 1900 would have grown in nominal value by the end of year 2006 to:

What has been the average annual rate of return in real terms for a portfolio of U.S. common stocks between 1900 and 2006?

Diversification reduces risk because prices of different securities do not move exactly together.

Sun Corporation has had returns of -6%, 16%, 18%, and 28% for the past four years. Calculate the standard deviation of the returns.

What has been the average annual nominal rate of return on a portfolio of U.S. common stocks over the past 107 years (from 1900 to 2006)?

According to the authors, a reasonable range for the risk premium in the United States is 5% to 8%.

Higher the standard deviation of a stock higher is its beta.

Which of the following countries had the highest risk premium?

If the average annual rate of return for common stocks is 11.7%, and for treasury bills it is 4.0%, what is the market risk premium?

Risk premium is the difference between the security return and the Treasury bill return.

Treasury bills have provided the highest average return, both in nominal terms and in real terms, between 1900-2006.