What is the expected return on this stock given the following information? $\begin{array}{lcc} \text { State of the Economy } & \text { Probability of } & \text { Rate of Return if } \\ & \text { State of Economy } & \text { state occurs }\\ \text { Boom } & .15 & 22 \% \\ \text { Normal } & .60 & 11 \% \\ \text { Recession } & .25 & -14 \% \end{array}$

A) 6.40% B) 6.57% C) 8.99% D) 13.40% E) 14.25% A) 6.40% B) 6.57% C) 8.99% D) 13.40% E) 14.25%

What is the variance of the expected returns on this stock? \[\begin{array} { l c c } \text { State of the Economy } & \text { Erobability } & E ( R ) \\ \text { Eoom } & .70 & 24\% \\ \text { Recegaion } & .30 & 6\% \end{array}\]

A) 48.75% B) 52.75% C) 61.53% D) 68.04% E) 70.03% A) 48.75% B) 52.75% C) 61.53% D) 68.04% E) 70.03%

What is the expected return on this stock given the following information? $\begin{array}{lcc} \text { State of the Economy } & \text { Probability of } & \text { Rate of Return if } \\ & \text { State of Economy } & \text { state occurs }\\ \text { Boom } & .05 & 16 \% \\ \text { Normal } & .45 & 7 \% \\ \text { Recession } & .50 & -12 \% \end{array}$

A) 2.05% B) 1.08% C) .47% D) 1.22% E) 1.43% A) 2.05% B) 1.08% C) .47% D) 1.22% E) 1.43%

The risk-free rate is 2.05%. What is the expected risk premium on this stock given the following information? $\begin{array}{lrr} \text { State of the Economy } & \text { Probability of } & \text { Rate of Return if } \\ & \text { State of Economy } & \text { state occurs }\\ \text { Boom } & .35 & 16\%\\ \text { Normal } & .65 & 6 \% \end{array}$

A) 6.88% B) 6.95% C) 7.32% D) 7.45% E) 7.59% A) 6.88% B) 6.95% C) 7.32% D) 7.45% E) 7.59%

You have a portfolio which is comprised of 40% of Stock A and 60% of Stock B. What is the standard deviation of this portfolio? $\begin{array}{lccc} \text { State of the Economy } & \text { Probability } & \text { A } & \text { B } \\ \text { Boom } & .15 & 22 \% & 19\% \\ \text { Normal } & .80 & 12\% & 10\% \\ \text { Recession } & .05 & -26 \% & -4\% \end{array}$

A) 4.39% B) 5.68% C) 6.41% D) 7.14% E) 9.08% A) 4.39% B) 5.68% C) 6.41% D) 7.14% E) 9.08%

What is the variance of the returns on a security given the following information? $\begin{array}{lcc} \text { State of the Economy }&\text { Probability}&\text { E(R) }\\ \text { Boom } & .25 & 16\% \\ \text { Normal } & .45 & 10\% \\ \text { Recession } & .30 & -8 \% \end{array}$

A) 48.18% B) 56.23% C) 64.38% D) 72.87% E) 90.99% A) 48.18% B) 56.23% C) 64.38% D) 72.87% E) 90.99%

A portfolio consists of the following securities. What is the portfolio weight of Stock X? $\begin{array}{ccc} \text { Stock }&\text { Number of}&\text { Price per Share } \\ &\text { Shares }\\ \text {X }& 600 & \$ 17 \\ \text {Y }& 900 & \$ 23 \\ \text {Z} & 400& \$ 49 \end{array}$

A) .183 B) .202 C) .219 D) .246 E) .285 A) .183 B) .202 C) .219 D) .246 E) .285

Exam 11: Diversification and Risky Asset Allocation

What is the expected return on this stock given the following information? State of the Economy Probability of Rate of Return if State of Economy state occurs Boom .15 22\% Normal .60 11\% Recession .25 -14\%

(Multiple Choice)

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Question 41

An efficient portfolio is one that does which of the following?

(Multiple Choice)

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Question 42

What is the variance of the expected returns on this stock? State of the Economy Erobability E(R) Eoom .70 24\% Recegaion .30 6\%

(Multiple Choice)

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Question 43

A stock fund has a standard deviation of 16% and a bond fund has a standard deviation of 4%. The correlation of the two funds is .11. What is the weight of the stock fund in the minimum variance portfolio?

(Multiple Choice)

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Question 44

What is the expected return on this stock given the following information? State of the Economy Probability of Rate of Return if State of Economy state occurs Boom .05 16\% Normal .45 7\% Recession .50 -12\%

(Multiple Choice)

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Question 45

Rosita owns a stock with an overall expected return of 14.40%. The economy is expected to either boom or be normal. There is a 52% chance the economy will boom. If the economy booms, this stock is expected to return 15%. What is the expected return on the stock if the economy is normal?

(Multiple Choice)

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Question 46

The risk-free rate is 2.05%. What is the expected risk premium on this stock given the following information? State of the Economy Probability of Rate of Return if State of Economy state occurs Boom .35 16\% Normal .65 6\%

(Multiple Choice)

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Question 47

You are graphing the investment opportunity set for a portfolio of two securities with the expected return on the vertical axis and the standard deviation on the horizontal axis. If the correlation coefficient of the two securities is +1, the opportunity set will appear as which one of the following shapes?

(Multiple Choice)

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Question 48

You are graphing the portfolio expected return against the portfolio standard deviation for a portfolio consisting of two securities. Which one of the following statements is correct regarding this graph?

(Multiple Choice)

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Question 49

You currently have a portfolio comprised of 70% stocks and 30% bonds. Which one of the following must be true if you change the asset allocation?

(Multiple Choice)

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Question 50

To reduce risk as much as possible, you should combine assets which have one of the following correlation relationships?

(Multiple Choice)

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Question 51

You have a portfolio which is comprised of 40% of Stock A and 60% of Stock B. What is the standard deviation of this portfolio? State of the Economy Probability A B Boom .15 22\% 19\% Normal .80 12\% 10\% Recession .05 -26\% -4\%

(Multiple Choice)

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Question 52

An investor owns a security that is expected to return 12% in a booming economy and 4% in a normal economy. The overall expected return on the security is 7.80%. Given there are only two states of the economy, what is the probability that the economy will boom?

(Multiple Choice)

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Question 53

What is the variance of the returns on a security given the following information? State of the Economy Probability E(R) Boom .25 16\% Normal .45 10\% Recession .30 -8\%

(Multiple Choice)

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Question 54

Which one of the following distinguishes a minimum variance portfolio?

(Multiple Choice)

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Question 55

You have a portfolio which is comprised of 48% of Stock A and 52% of Stock B. What is the standard deviation of this portfolio?

(Multiple Choice)

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Question 56

Roger has a portfolio comprised of $8,000 of Stock A and $12,000 of Stock B. What is the standard deviation of this portfolio?

(Multiple Choice)

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Question 57

As the number of individual stocks in a portfolio increases, the portfolio standard deviation:

(Multiple Choice)

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Question 58

A portfolio consists of the following securities. What is the portfolio weight of Stock X? Stock Number of Price per Share Shares X 600 \ 17 Y 900 \ 23 Z 400 \ 49

(Multiple Choice)

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Question 59

How will the returns on two assets react if those returns have a perfect positive correlation? I. move in the same direction II. move in opposite directions III. move by the same amount IV. move by either equal or unequal amounts

(Multiple Choice)

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Question 60

What is the expected return on this stock given the following information? State of the Economy Probability of Rate of Return if State of Economy state occurs Boom .15 22\% Normal .60 11\% Recession .25 -14\%

An efficient portfolio is one that does which of the following?

What is the variance of the expected returns on this stock? State of the Economy Erobability E(R) Eoom .70 24\% Recegaion .30 6\%

A stock fund has a standard deviation of 16% and a bond fund has a standard deviation of 4%. The correlation of the two funds is .11. What is the weight of the stock fund in the minimum variance portfolio?

What is the expected return on this stock given the following information? State of the Economy Probability of Rate of Return if State of Economy state occurs Boom .05 16\% Normal .45 7\% Recession .50 -12\%

Rosita owns a stock with an overall expected return of 14.40%. The economy is expected to either boom or be normal. There is a 52% chance the economy will boom. If the economy booms, this stock is expected to return 15%. What is the expected return on the stock if the economy is normal?

The risk-free rate is 2.05%. What is the expected risk premium on this stock given the following information? State of the Economy Probability of Rate of Return if State of Economy state occurs Boom .35 16\% Normal .65 6\%

You are graphing the portfolio expected return against the portfolio standard deviation for a portfolio consisting of two securities. Which one of the following statements is correct regarding this graph?

You currently have a portfolio comprised of 70% stocks and 30% bonds. Which one of the following must be true if you change the asset allocation?

To reduce risk as much as possible, you should combine assets which have one of the following correlation relationships?

You have a portfolio which is comprised of 40% of Stock A and 60% of Stock B. What is the standard deviation of this portfolio? State of the Economy Probability A B Boom .15 22\% 19\% Normal .80 12\% 10\% Recession .05 -26\% -4\%

An investor owns a security that is expected to return 12% in a booming economy and 4% in a normal economy. The overall expected return on the security is 7.80%. Given there are only two states of the economy, what is the probability that the economy will boom?

What is the variance of the returns on a security given the following information? State of the Economy Probability E(R) Boom .25 16\% Normal .45 10\% Recession .30 -8\%

Which one of the following distinguishes a minimum variance portfolio?

You have a portfolio which is comprised of 48% of Stock A and 52% of Stock B. What is the standard deviation of this portfolio?

Roger has a portfolio comprised of $8,000 of Stock A and $12,000 of Stock B. What is the standard deviation of this portfolio?

As the number of individual stocks in a portfolio increases, the portfolio standard deviation:

A portfolio consists of the following securities. What is the portfolio weight of Stock X? Stock Number of Price per Share Shares X 600 \ 17 Y 900 \ 23 Z 400 \ 49

How will the returns on two assets react if those returns have a perfect positive correlation? I. move in the same direction II. move in opposite directions III. move by the same amount IV. move by either equal or unequal amounts

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

Futures Contracts

Stock Options

Option Valuation

Alternative Investments

Corporate and Government Bonds

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

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