What is the variance of the expected returns on this stock? $\begin{array}{lrr} \text { State of the Economy } & \text { Probability of } & \text { Rate of Return if } \\ & \text { State of Economy } & \text { state occurs }\\ \text { Boom } & .40& 15\% \\ \text { Normal } & .60 &19 \% \end{array}$

A) 1.21% B) 1.42% C) 1.56% D) 3.84% E) 4.03% A) 1.21% B) 1.42% C) 1.56% D) 3.84% E) 4.03%

You have a portfolio which is comprised of 60% of Stock A and 40% of Stock B. What is the expected rate of return on this portfolio? $\begin{array}{lrrr} \text {State}&\text {Prob}&\text {A}&\text {B}\\ \text { Boom } & .20 & 15 \% & 9\% \\ \text { Normal } & .80 & 8 \% & 20\% \end{array}$

A) 12.76% B) 12.88% C) 13.44% D) 13.56% E) 13.85% A) 12.76% B) 12.88% C) 13.44% D) 13.56% E) 13.85%

What is the variance of the expected returns on this stock? $\begin{array}{lcr} \text { State of the Economy } & \text { Probability } & E(R) \\ \text { Boom } & .35 & 18 \% \\ \text { Recession } & .65 & 8\% \end{array}$

A) 18.75% B) 22.75% C) 31.53% D) 48.97% E) 50.03% A) 18.75% B) 22.75% C) 31.53% D) 48.97% E) 50.03%

What is the variance of the expected returns on this stock? $\begin{array}{lcr} \text { State of the Economy } & \text { Probability } & E(R) \\ \text { Boom } & .25 & 15 \% \\ \text { Normal } & .75 & 8 \% \end{array}$

A) 5.25 B) 5.79 C) 6.25 D) 9.19 E) 10.50 A) 5.25 B) 5.79 C) 6.25 D) 9.19 E) 10.50

A) squared measure of a security's total risk. B) extent to which the returns on two assets move together. C) measurement of the systematic risk contained in an asset. D) daily return on an asset compared to its previous daily return. E) spreading of an investment across a number of assets. A) squared measure of a security's total risk. B) extent to which the returns on two assets move together. C) measurement of the systematic risk contained in an asset. D) daily return on an asset compared to its previous daily return. E) spreading of an investment across a number of assets.

You have a portfolio that is comprised of 72% of Stock A and 28% of Stock B. What is the variance of this portfolio? \[\begin{array} { l c c c } \text { State of the Economy } & \text { Probability } & \text { A } &\text { B } \\ \text { Boom } & .60 & 12\%& 22\% \\ \text { Normal } & .40 & - 12 \%& - 44\% \end{array}\]

A) 190.9% B) 203.8% C) 268.1% D) 290.9% E) 306.9% A) 190.9% B) 203.8% C) 268.1% D) 290.9% E) 306.9%

What is the expected return on this stock given the following information? $\begin{array}{lcc} \text { State of the Economy }&\text { Probability}&\text { E(R) }\\ \text { Boom } & .25 & 20\% \\ \text { Normal } & .55 & 15\% \\ \text { Recession } & .20 & -12 \% \end{array}$

A) 9.36% B) 9.74% C) 10.85% D) 11.78% E) 12.05% A) 9.36% B) 9.74% C) 10.85% D) 11.78% E) 12.05%

You have a portfolio which is comprised of 60% of Stock A and 40% of Stock B. What is the expected return on this portfolio? $\begin{array}{lllr} \text { State of the Economy } & \text { Probability } &\text {E(R)}_{A}&\text { E(R)}_{B}\\ \text { Weight }&&60\%&40\%\\ \\ \text { Boom }&.2&20\%&15\%\\ \text { Normal } & .6 & 12\% &8 \% \\ \text { Recegsion } & .2& -10 \% & 3\% \end{array}$

A) 7.30% B) 7.58% C) 8.03% D) 8.88% E) 9.40% A) 7.30% B) 7.58% C) 8.03% D) 8.88% E) 9.40%

Exam 11: Diversification and Risky Asset Allocation

You own a stock that will produce varying rates of return based upon the state of the economy. Which one of the following will measure the risk associated with owning that stock?

(Multiple Choice)

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Question 21

What is the variance of the expected returns on this stock? State of the Economy Probability of Rate of Return if State of Economy state occurs Boom .40 15\% Normal .60 19\%

(Multiple Choice)

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Question 22

You own a stock which is expected to return 14% in a booming economy and 9% in a normal economy. If the probability of a booming economy decreases, your expected return will:

(Multiple Choice)

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Question 23

You have a portfolio which is comprised of 60% of Stock A and 40% of Stock B. What is the expected rate of return on this portfolio? State Prob A B Boom .20 15\% 9\% Normal .80 8\% 20\%

(Multiple Choice)

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Question 24

The principal of diversification involves investing in a variety of assets with which one of the following being the primary goal?

(Multiple Choice)

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Question 25

Which of the following affect the expected rate of return for a portfolio? I. weight of each security held in the portfolio II. the probability of various economic states occurring III. the variance of each individual security IV. the expected rate of return of each security given each economic state

(Multiple Choice)

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Question 26

Which one of the following statements is correct?

(Multiple Choice)

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Question 27

Stock X has a standard deviation of 21% per year and Stock Y has a standard deviation of 6% per year. The correlation between Stock A and Stock B is .38. You have a portfolio of these two stocks wherein Stock X has a portfolio weight of 42%. What is your portfolio standard deviation?

(Multiple Choice)

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Question 28

What is the variance of the expected returns on this stock? State of the Economy Probability E(R) Boom .35 18\% Recession .65 8\%

(Multiple Choice)

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Question 29

Alicia has a portfolio consisting of two stocks, X and Y, which is valued at $95,300. Stock X is worth $65,700. What is the portfolio weight of Stock Y?

(Multiple Choice)

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Question 30

The value of an individual security divided by the total value of the portfolio is referred to as the portfolio:

(Multiple Choice)

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Question 31

Which one of the following correlation coefficients must apply to two assets if the equally weighted portfolio of those assets creates a minimum variance portfolio that has a standard deviation of zero?

(Multiple Choice)

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Question 32

A stock fund has a standard deviation of 28% and a bond fund has a standard deviation of 16%. The correlation of the two funds is .15. What is the approximate weight of the stock fund in the minimum variance portfolio?

(Multiple Choice)

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Question 33

What is the variance of the expected returns on this stock? State of the Economy Probability E(R) Boom .25 15\% Normal .75 8\%

(Multiple Choice)

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Question 34

Which one of the following correlation relationships has the potential to completely eliminate risk?

(Multiple Choice)

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Question 35

Correlation is the:

(Multiple Choice)

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Question 36

You have a portfolio that is comprised of 72% of Stock A and 28% of Stock B. What is the variance of this portfolio? State of the Economy Probability A B Boom .60 12\% 22\% Normal .40 -12\% -44\%

(Multiple Choice)

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Question 37

What is the expected return on this stock given the following information? State of the Economy Probability E(R) Boom .25 20\% Normal .55 15\% Recession .20 -12\%

(Multiple Choice)

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Question 38

Which of the following will increase the expected risk premium for a security, all else constant? I. an increase in the security's expected return II. a decrease in the security's expected return III. an increase in the risk-free rate IV. a decrease in the risk-free rate

(Multiple Choice)

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Question 39

You have a portfolio which is comprised of 60% of Stock A and 40% of Stock B. What is the expected return on this portfolio? State of the Economy Probability Weight 60\% 40\% Boom .2 20\% 15\% Normal .6 12\% 8\% Recegsion .2 -10\% 3\%

(Multiple Choice)

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Question 40

You own a stock that will produce varying rates of return based upon the state of the economy. Which one of the following will measure the risk associated with owning that stock?

What is the variance of the expected returns on this stock? State of the Economy Probability of Rate of Return if State of Economy state occurs Boom .40 15\% Normal .60 19\%

You own a stock which is expected to return 14% in a booming economy and 9% in a normal economy. If the probability of a booming economy decreases, your expected return will:

You have a portfolio which is comprised of 60% of Stock A and 40% of Stock B. What is the expected rate of return on this portfolio? State Prob A B Boom .20 15\% 9\% Normal .80 8\% 20\%

The principal of diversification involves investing in a variety of assets with which one of the following being the primary goal?

Which one of the following statements is correct?

Stock X has a standard deviation of 21% per year and Stock Y has a standard deviation of 6% per year. The correlation between Stock A and Stock B is .38. You have a portfolio of these two stocks wherein Stock X has a portfolio weight of 42%. What is your portfolio standard deviation?

What is the variance of the expected returns on this stock? State of the Economy Probability E(R) Boom .35 18\% Recession .65 8\%

Alicia has a portfolio consisting of two stocks, X and Y, which is valued at $95,300. Stock X is worth $65,700. What is the portfolio weight of Stock Y?

The value of an individual security divided by the total value of the portfolio is referred to as the portfolio:

Which one of the following correlation coefficients must apply to two assets if the equally weighted portfolio of those assets creates a minimum variance portfolio that has a standard deviation of zero?

A stock fund has a standard deviation of 28% and a bond fund has a standard deviation of 16%. The correlation of the two funds is .15. What is the approximate weight of the stock fund in the minimum variance portfolio?

What is the variance of the expected returns on this stock? State of the Economy Probability E(R) Boom .25 15\% Normal .75 8\%

Which one of the following correlation relationships has the potential to completely eliminate risk?

Correlation is the:

You have a portfolio that is comprised of 72% of Stock A and 28% of Stock B. What is the variance of this portfolio? State of the Economy Probability A B Boom .60 12\% 22\% Normal .40 -12\% -44\%

What is the expected return on this stock given the following information? State of the Economy Probability E(R) Boom .25 20\% Normal .55 15\% Recession .20 -12\%

Which of the following will increase the expected risk premium for a security, all else constant? I. an increase in the security's expected return II. a decrease in the security's expected return III. an increase in the risk-free rate IV. a decrease in the risk-free rate

You have a portfolio which is comprised of 60% of Stock A and 40% of Stock B. What is the expected return on this portfolio? State of the Economy Probability Weight 60\% 40\% Boom .2 20\% 15\% Normal .6 12\% 8\% Recegsion .2 -10\% 3\%

A Brief History of Risk and Return

The Investment Process

Overview of Security Tips

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

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Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

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